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Central  Pacific  Railroad  Company 


FACTS  REGARDING 

ITS  PAST  AND  PRESENT  MANAGEMENT 


BY 


A  STOCKHOLDER  AMD  FORMER  EMPLOYEE 


■ 


RoL^-tT  S  .  Q/cJve.  rr\ 


T,  So*B*Fitl  S'*  Graham,  of  the  City  and  County  of  San  Francisco,  Stale 
of  California,  do  hereby  certify  as  follows  : 

I  am  a  stockholder  in  the  Central  Pacific  Railroad  Company,  and  have 
been  in  the  employ  of  said  Company  (and  the  Southern  Pacific  Company 
of  Kentucky,  as  its  lessee),  in  the  office  of  the  Secretary,  as  clerk,  durin  g 
the  past  ten  years.  I  am  familiar  with  the  past  official  acts  of  the  Boards 
of  Directors  of  both  companies,  having  kept  the  books  in  which  the  pro 
ceedings  thereof  are  recorded. 

I  resigned  from  such  position,  freely  and  voluntarily,  on  April  IS,  188f>, 
in  anticipation  of  a  suit  against  Stanford  &  Co.,  as  Directors,  by  certai 
subscribers  and  stockholders  of  the  Central  Pacific  Railroad  Company  of 
California,  for  an  accounting  of  funds.  I  have  knowledge  of  the  corrup¬ 
tion  and  fraud  practised  in  the  management  of  the  above  roads  by  the 
Directors,  and  believe  that  such  a  suit  would  lead  to  the  exposure  of  their 
present  methods  as  well  as  past  acts.  Obstacles  in  the  way  at  the  tirne 
temporarily  delayed  the  necessary  action  to  be  taken ;  but  recently  a  su 
has  been  instituted  with  the  above  object  in  view. 

I  believe  that  the  controlling  power  of  the  present  Board  of  Directors 
is  so  corrupt  as  to  demand,  in  the  interest  of  the  stockholders  and  tl  < 
United  States  Government,  that  the  above  roads  be  placed  in  better  hands 
for  operation,  before  it  becomes  too  late,  said  Directors,  by  their  mismaiji- 
agement,  being  already  heavily  indebted  to  the  roads. 

The  evidence  contained  in  the  following  pages  is  true  and  correct 
copies  of  the  originals ;  and  I  acknowledge  the  statements  made  by  nte 
to  be  my  best  judgment  and  belief. 

In  witness  whereof,  I  hereunto  affix  my  hand  and  seal,  this  eleventh 
day  of  November,  A.  D.  1889. 

Robert  S.  Graham,  [seal] 

Subscribed  and  sworn  to  before  me  by  the  ) 
said  Robert  S.  Graham,  this  eleventh  day  > 
of  November,  A.  D.  1889.  ) 

Lincoln  Sonntag, 

Notary  Public ,  [seal] 

In  and  for  the  City  and  County  of  San  Francisco,  State  of  California 


PREFACE. 


This  publication  will  better  acquaint  the  stockholders  and  the  United 
States  Government  with  the  methods  of  Stanford  and  his  associates  in 
their  past  and  present  management  of  the  Central  Pacific  and  other  roads 
now  being  operated  under  lease  by  the  Southern  Pacific  Company  of  Ken¬ 
tucky.  As  Congress  is  about  to  consider  the  best  plan  for  collecting  the 
debt  from  the  Central  Pacific  Railroad  Company,  I  have  included  herein 
facts  relative  to  the  earlier  history  of  the  management ;  much  of  the  infor¬ 
mation,  however,  is  presented  for  the  first  time,  and  will,  I  hope,  influence 
the  Government  in  reaching  a  proper  solution  of  the  present  difficulties. 

It  is  necessary  in  order  to  do  this  to  give  some  inside  facts  as  to  the 
practices  of  the  principal  directors.  I  propose  to  show  why  these  men 
should  not  be  treated  as  public  benefactors,  and  that  the  intention  of  the 
Government  to  insist  upon  a  strict  fulfilment  of  their  obligations  to  it  is 
but  just  and  proper.  To  this  end  1  have  made  use  of  some  of  the  infor¬ 
mation  elicited  through  the  recent  investigation  by  the  late  United  States 
Pacific  Railway  Commission.  In  such  I  have  confined  my  quotations, 
however,  to  the  report  of  the  Majority  Commission,  as  I  understand  that 
the  President  of  the  Company  complains  that  the  sweeping  charges  and 
denunciations  submitted  in  the  report  of  the  Minority  Commission  by 
Chairman  Pattison  are  unjust.  Although  I  have  read  that  portion  of 
both  reports  which  relates  to  the  Central  Pacific,  I  cannot  recall  a  single 
paragraph  containing  a  favorable  criticism  of  the  management  of  the  road. 
Notwithstanding  this,  shortly  after  the  Investigation  Commission  had 
been  appointed  by  President  Cleveland,  Mr.  Stanford  remarked  to  the 
writer:  “Ido  not  fear  the  people  ;  they  cannot  hang  a  man  unless  a 
murder  has  been  committed,  and  in  this  case  there  has  been  no  murder.” 
When  the  Commission  reached  San  Francisco,  he  expressed  to  them  his 
pleasure  at  being  allowed  the  opportunity  of  setting  himself  aright  before 
the  public.  He  promised  them  every  assistance,  and  pretended  to  welcome 
a  full  and  impartial  investigation  of  his  management. 

The  manner  in  which  he  succeeded  in  forcing  the  investigation  to  an 
abrupt  termination  is  still  fresh  in  the  minds  of  the  people.  Through  his 
refusal  to  answer  a  particular  question,  he  practically  admitted  that  money 
belonging  to  the  Company,  in  the  aggregate  $4,818,355.67,  was  squandered 
by  himself  and  associates.  The  expenditures  are  shown  by  vouchers  con¬ 
taining  no  information  as  to  what  purpose  the  money  was  applied.  “It 
appears  from  the  books  of  the  Company,”  state  the  Commission,  “  that 
from  the  very  inception  of  the  enterprise  down  to  the  present  time,  it  has 
been  the  constant  practice  of  the  Directors  of  this  Company  to  permit  the 
expenditures  of  very  large  sums  of  money  without  requiring  any  sufficient 
vouchers  disclosing  the  purposes  to  which  they  are  applied.”  (Report 
Majority  Commission,  page  84.) 


r  Z-53£3 


4 


PREFACE. 


I  have  shown  elsewhere  a  copy  of  correspondence  which  throws  doubts 
on  the  probability  that  the  books  and  records  of  the  Contract  and  Finance 
Company  have  been  destroyed;  and  I  invite  the  reader’s  attention  thereto. 
I  can  furnish  the  Honorable  {Senate  Committee  on  Pacific  Railroads  with 
the  name  of  the  party  who  “  borrowed  ”  the  important  contract  with  the 
above  Company,  and  can  contradict  some  testimony  given  by  a  certain 
official  of  the  Central  Pacific  before  the  late  Commission  regarding  this 
subject.  Furthermore,  I  will  furnish  the  Committee  with  a  copy  of  what 
I  am  satisfied  was  the  agreement  with  the  Contract  and  Finance  Com¬ 
pany  for  the  construction  of  the  road  East  of  the  California  State  line.  I 
have  not  shown  it  here,  as  it  is  rather  lengthy,  but  I  expect  to  be  able  to 
fully  establish  its  genuineness.  I  have  extracts  of  other  contracts  besides, 
made  by  the  Directors,  which  were  recorded  in  the  book  of  “  Record  of  Cor¬ 
poration  Debts,”  referred  to  herein.  I  intend  to  be  in  Washington  during 
the  coming  session  of  Congress,  and  will  be  pleased  to  personally  verify 
and  explain  what  I  have  written. 

In  these  pages  I  wish  to  show,  to  those  interested,  the  feasibility  as  well 
as  the  necessity  of  placing  the  Central  Pacific  and  its  auxiliary  lines  in 
other  hands ;  that  the  Directors  have  no  regard  for  the  rights  of  others, 
but  have  always  operated  the  roads  for  their  individual  gain  ;  and  that 
they  are  also  in  the  habit  of  taking  unusual  precautions  to  protect  them¬ 
selves  and  their  estates  from  liability  for  their  misdeeds— precautions  such 
as  are  only  necessary  when  trusts  are  being  violated. 

By  their  rascality  and  deception,  practised  against  the  stockholders, 
they  have  up  to  the  present  time  prevented  justice  being  dealt  out  to  them 
through  the  courts.  Their  day  of  reckoning  with  the  Government  is  now 
close  at  hand,  and  they  should  be  held  strictly  to  account ;  otherwise  the 
Government  will  have  no  trouble  in  finding  reliable  parties  willing  to  pay 
the  debt  and  operate  the  road  for  the  benefit  of  all  interested. 


CENTRAL  PACIFIC  RAILROAD. 


When  the  Central  Pacific  Railroad  Company  of  California  was  organized, 
on  June  27,  1861,  under  the  Act  of  the  Legislature  of  California,  dated 
May  20,  1861,  it  had  nine  Directors,  as  follows: 

Leland  Stanford  T.  D.  Judah,  Mark  Hopkins, 

Charles  Crocker,  L.  A.  Booth,  D.  W.  Strong, 

James  Bailey,  C.  P.  Huntington,  Charles  Marsh. 

By  one  way  or  another,  all  but  four  of  these  were  soon  dropped,  and 
Messrs.  Stanford,  Huntington,  Hopkins,  and  Crocker  thereby  secured  ex¬ 
clusive  control  in  the  management  of  the  Company’s  affairs  ;  they  having 
shortly  afterward  reduced  the  requisite  number  of  Directors  from  nine  to 
seven. 

The  four  mentioned  had  subscribed  for  150  shares  each  of  the  capital 
stock,  but  their  combined  means  were  very  small.  It  was  owing,  in  fact,  to 
the  liberal  and  timely  assistance  of  the  United  States  Government  that  the 
construction  of  both  the  Central  and  Union  Pacific  roads  progressed 
rapidly,  and  their  early  completion  insured,  resulting  as  it  did  in  a  saving 
of  seven  years  of  the  time  allowed  by  the  Act  granting  the  aid.  The 
connection  was  made  in  May,  1869.  Thus  the  Companies  received  the 
benefit  of  seven  years’  additional  earnings  ;  besides  which  the  Government 
promptly  issued  its  bonds  as  sections  of  the  road  were  finished,  taking  as 
security  a  second  lien  on  the  property,  and  allowing  the  Companies  to  issue 
first  mortgage  bonds  of  their  own. 

The  following  report  of  the  earnings  of  the  Central  Pacific  up  to  1884 
is  of  interest  : 

The  operation  of  the  Company  appears  to  have  been  successful  from  its  very  in¬ 
ception.  During  the  earlier  years  the  Company  was  entirely  free  from  competition  and 
charged  very  high  rates,  both  for  freight  and  passengers.  The  result  of  this  is  shown 
in  the  percentage  of  operating  expenses  as  compared  with  the  gross  earnings,  which, 
during  the  early  period  of  the  Company,  were  as  low  as  23£  per  centum  per  annum, 


and  at  no  time  prior  to  1875  exceeded  40  per  centum  per  annum. 

From  1863  to  the  31st  of  December,  1869 : 

The  gross  earnings  were .  $10,807,508.76 

Operating  expenses .  4,700,624.56 

Leaving  net  earnings .  6,106,884.20 

Other  credits .  374,045.63 

6,480,929.83 

Interest  and  taxes  paid,  and  Government  requirements. . .  4,053,396.03 

Leaving  absolute  net .  2,427,533  80 


From  the  1st  of  January,  1870,  to  the  31st  of  December,  1873,  in 
which  latter  year  the  first  dividend  was  paid  : 

The  gross  earnings  were .  41,128,618.21 

Operating  expenses . 17,485,371.69 

Leaving  net  earnings .  23,643,246.52 

Other  credits .  2,167,318.29 

it:  25,810,564.81 

Interest  and  taxes  paid,  and  Government  requirements .  19,235,045.49 

Leaving  absolute  net .  6,575,519732 


6 


CENTRAL  PACIFIC  RAILROAD. 


Fx’cm  tti3 1st  of  January,  1874,  until  the  1st  of  January,  1884,  which 
was'tlfe  end  qf  the  dividend-paying  period  of  the  Company  : 


The  gross  darning's  ^were. ...  .*1 . $194,126,239.24 

OperaLihg^expenses.  . .  108,431,267.78 

Leaving  net'eaWdiigs .  85,694,971.46 

Other  credits . ‘ .  8.191,532.17 

93,8-6,503.63 

Interest  and  taxes  paid,  and  Government  requirements .  41,349,586.64 

Leaving  absolute  net  .  52,536,916.99 


During  the  period  last  mentioned  the  Central  Pacific  Railroad  Company  distributed 
to  its  stockholders  in  dividends  the  sum  of  $84,308,055.  (See  volume  5,  page  2547.) 
But  little  stock  was  sold  by  Stanford,  Huntington,  Hopkins,  and  Crocker  until  1880. 
Between  1873  and  1877  they  were  substantially  the  only  stockholders  of  the  Central 
Pacific  Railroad.  Nearly  the  entire  amount  of  dividends  declared  during  these  yeais 
was  therefore  received  by  those  four  persons. 

Tested  by  the  simple  question  of  earnings,  it  is  true  that  all  of  the  above-mentioned 
dividends  appear  by  the  income  account  of  the  Company  to  have  been  earned.  But  the 
distribution  of  this  vast  sum  of  money  to  these  four  persons,  whose  stock  represented 
no  contribution  whatever  to  the  actual  value  of  the  railroad,  was  most  improvident, 
and  was  in  plain  disregard  of  the  obligations  incurred  by  the  Company  to  the  United 
States.  The  Company  had  agreed  to  repay  the  debt  and  interest  at  the  expiration  of 
thirty  years.  How  could  it  be  possible,  if  the  stock  represented  no  actual  contributions 
to  the  earning  power  of  the  Company,  and  the  earnings  themselves  were  divided  up 
among  the  stockholders,  that  adequate  security  could  be  found  for  the  debt  due  to  the 
United  States,  increased  by  the  vast  amount  of  its  deferred  interest,  at  the  maturity 
of  the  debt? 

The  actual  amounts  put  into  the  enterprise  were  the  proceeds  of  the  first  mortgage 
bonds  and  of  the  United  States  loan  ;  in  all,  about  forty  millions  of  dol!ars.  By  what 
magic  was  it  expected  that  this  property,  after  the  wear  and  tear  of  thirty  years’  use, 
could  afford  any  sufficient  security  for  the  repayment  of  its  extravagant  cost,  increased 
by  the  interest  accruing  on  a  large  portion  of  its  debt,  if  all  its  current  earnings  were 
distributed  to  its  stockholders,  without  making  provision  for  the  constantly  increas¬ 
ing  obligation?  The  ordinary  dictates  of  prudent  and  honest  management  should 
have  impelled  the  Directors  of  this  Company  to  make  suitable  provision  out  of  the 
large  earnings,  during  the  profitable  years  of  its  operation,  to  cover  this  impending 
debt.  (Report  Majority  Commission,  p.  87.) 

Under  the  laws  of  the  State  of  California,  stockholders  are  liable  for 
the  debts  of  the  Company.  It  was  not  until  after  Congress  voted  the  aid 
that  Stanford  &  Co.,  on  Oct.  22,  1862,  each  subscribed  for  an  additional 
five  hundred  shares.  They  paid  no  money  for  the  stock,  however,  but 
voted  large  sums  to  themselves  as  Directors,  for  “  extra  services,”  salaries, 
etc.,  and  credited  a  portion  thereof  on  account  of  their  subscriptions.  At 
no  time  did  they  risk  any  of  their  private  means  in  the  enterprise,  and 
from  the  very  first  charged  the  Company  liberally  for  their  services. 

In  contrast  to  this  it  may  be  stated  that  there  are  to-day  several  original 
subscribers  who  still  hold  their  certificates  of  stock,  having  paid  cash 
therefor  in  full  ;  and  although  they  were  liable  for  the  Company  's  debts, 
up  to  the  present  time  they  have  never  received  a  cent  of  its  profits.  They 
properly  refused  to  exchange  their  original  holdings,  share  for  share,  for 
the  capital  stock  when  increased  from  $8,500,000  to  $100,000,000,  and 
are  so  denied  the  dividends  since  declared. 

The  first  contract  for  the  building  of  sections  of  the  road  was  let  to 
Charles  Crocker,  who  thereupon  resigned  from  the  board,  his  brother,  E. 
B.  Crocker,  taking  his  seat  as  Director. 

“  C.  Crocker  &  Co.,”  as  he  styled  himself,  then  submitted  a  proposition 
to  the  Directors  to  construct  the  road  from  the  foot  of  K  Street,  in  Sacra¬ 
mento,  to  the  line  of  the  California  Central  Railroad  Company,  known  as 
Roseville  Junction,  a  distance  of  eighteen  miles,  for  $400,000;  terms. 
$250,000  in  cash,  $100,000  in  Company’s  bonds,  and  $50,000  in  capital 


CENTRAL  PACIFIC  RAILROAD. 


7 


stock.  *  The  second  and  third  contracts  were  also  let  to  0.  Crocker  &  Co. 
None  of  them  were  ever  submitted  to  the  stockholders  for  approval. 

The  following  extracts  from  the  Company’s  by-laws  of  1862  will  give 
an  idea  of  the  powers  of  the  Chief  Engineer,  Mr.  T.  D.  Judah,  who  was 
also  a  director  : 

Section  14.  All  subordinate  officers  and  agents  of  the  Company  shall  be  appointed 
or  employed  by  the  Board  of  Directors  or  Chief  Engineer. 

Section  15.  ;  and  the  President,  or  Chief  Engineer,  may  remove  at 

pleasure  any  subordinate  officer  or  agent.  .  .  .” 

On  September  12,  1863,  C.  Crocker  presented  the  following  bill  against 
the  Company,  showing  Mr.  Judah’s  allowance  of  same  : 

CENTRAL  PACIFIC  RAILROAD  COMPANY  OF  CALIFORNIA. 


To  C.  Crocker  &  Co.,  Dr. 

3  wooden  piers,  American  River  Bridge .  $6,000  00 

30  extra  piers.  “  “  .  540  00 

300  c.  yds.  cobbles,  “  “  $12  .  3,600  00 

Extra  bents  “  **'  trestling . .  500  00 

Curves  and  levees  on  I  Street  route .  10,000  00 

Interest  upon  advances .  .  1,230  00 

7,500  extra  ties,  delivered,  at  $70 .  5,250  00 


Total  .  $27,120  00 

Sacramento,  September  12,  1863. 

Approved  to  the  extent  of  $25,500. 


Theo.  D.  Judah,  Chief  Engineer  C.  P.  B.  B.  Co 

It  will  be  seen  that  Mr.  Crocker  was  not  modest  in  his  charges  at  this 
time.  But  as  his  bills  passed  through  Mr.  Judah’s  hands  before  payment, 
it  proved  to  be  an  obstacle  to  Crocker,  preventing  the  payment  of  his 
future  bills  at  his  own  prices.  For  no  other  known  motive  than  to  gain  the 
good  will  of  the  Chief  Engineer,  on  September  19,  1863,  he  entered  into 
an  agreement  with  that  officer,  of  which  the  following  is  a  copy: 

For  value  received  I  hereby  agree  and  bind  myself  that  I  will,  upon  the  comple¬ 
tion  of  fifty  miles  of  the  Central  Pacific  Railroad  of  California,  from  the  foot  of  K 
Street  in  the  City  of  Sacramento,  eastward ly,  so  that  a  train  of  cars  can  run  through 
oil  the  same,  deliver  or  cause  to  be  delivered  to  T.  D.  Judah,  his  heirs,  executors,  or 
administrators,  fifty  of  the  First  Mortgage  Bonds  of  the  Central  Pacific  Railroad  Com¬ 
pany  of  California,  for  one  thousand  dollars  each,  with  all  the  interest  coupons 
attached  thereto  which  are  not  then  due  ;  said  bonds  to  be  of  the  first  issue  of  mort¬ 
gage  bonds  of  said  Company,  bearing  date  December  1,  1862,  of  which  Eugene 
Kelly  and  David  S.  Dodge  are  trustees.  This  agreement  not  to  be  assigned  or  trans¬ 
ferred  to  any  person  without  my  written  consent  endorsed  thereon. 

(Signed)  C.  Crocker. 

Sacramento,  September  19, 1863. 

This  agreement  was  made  when  Mr.  Crocker  was  not  a  Director  of  the 
Company,  but  simply  a  contractor.  Nevertheless,  he  could  give  away 
fifty  thousand  dollars  of  the  Company’s  bonds,  while  the  uhief  Engineer 
accepted  his  written  promise  as  a  sufficient  hold  on  the  Company.  In 
other  words,  Crocker  was  still  a  power  in  the  Company. 

To  one  not  familiar  with  the  allowances  the  Directors  voted  to  them¬ 
selves,  not  only  as  salaries  but  for  “  extra  services,”  it  would  appear  that 
during  the  early  construction  they  experienced  great  hardships,  and, 
according  to  the  statements  of  some  of  them,  were  frequently  penniless, 
having  spent  their  private  means  in  the  enterprise.  The  Company’s  rec¬ 
ords  prove  this  to  be  false.  Resolution  of  Directors  July  1,  1863,  shows: 

For  services  as  President  and  for  furtherance  of  the  interest  of  the  Company  other¬ 
wise,  Leland  Stauford  is  allowed  $10,000  per  year  from  the  28th  day  of  June,  1861,  to 


8 


CENTRAL  PACIFIC  RAILROAD. 


the  present  time  ;  T.  D.  Judah,  $10,000  as  salary  from  the  organization  of  the  Com¬ 
pany  ;  “  also  $25,000  for  services  as  agent  in  furthering  the  interest  of  this  Company 
in  the  Atlantic  States,  and  for  services  prior  to  the  organization  of  this  Company  ;  ” 
James  Bailey  (the  Secretary)  allowed  $25,000  “  for  services  in  the  Atlantic  States  and 
California  during  the  past  two  and  one-half  years;”  C.  P.  Huntington,  $25,000  for 
services  since  June  28,  1861,  to  date  ;  also  $10,000  a  year  salary. 

Resolution  of  September  5,  1864,  allows: 

Leland  Stanford,  $10,000  for  salary;  Mark  Hopkins,  $10,000;  C.  P.  Huntington, 
$25,000;  A.  P.  Stanford,  $5,000;  C.  Crocker,  $10,000;  E.  B.  Crocker,  $5,000;  also 
$18,000  for  additional  back  services;  C.  P.  Huntington,  $25,000  “  as  compensation  for 
his  financial  services,  agent  and  attorney,  for  attending  to  business  and  rendering  ser¬ 
vices  in  Washington  and  New  York  for  the  year  ending  July  1,  1864.” 

The  above  are  samples  of  the  resolutions  passed  annually.  Up  to 
July  1,  1864,  over  $250,000  was  thus  voted  to  themselves,  part  payment 
being  made  in  cash  and  part  in  capital  stock.  C.  Crocker,  it  will  be 
noticed,  was  allowed  a  salary  in  the  second  resolution.  A  couple  of 
months  prior  to  the  resolution  of  September  5  he  was  appointed  Gen¬ 
eral  Superintendent  of  the  road,  while  still  engaged  as  contractor,  while 
the  salary  covered  the  past  year. 

At  a  Directors’  meeting  held  in  June,  1865,  at  which  were  present 
Leland  Stanford,  E.  B.  Crocker,  Mark  Hopkins,  and  E.  H.  Miller,  Jr., 
many  of  the  prices  in  the  Crocker  contract  were  advanced.  In  the  report 
of  the  Majority  Commission,  page  70,  reference  is  made  to  these  prices  as 
giving  an  idea  of  the  cost  of  the  construction  to  the  Central  Pacific.  It 
should  be  remembered,  however,  that  they  were  only  allowed  iu  the 
Crocker  contracts,  in  which  the  other  Directors  were  equally  interested. 
On  this  point  the  Commission  conclude  as  follows  : 

The  Commission  endeavored,  by  the  examination  of  numerous  witnesses,  to  ascer¬ 
tain  the  cost  of  this  construction  to  Charles  Crocker  &  Co.  (see  evidence  of  Strow- 
bridge.  vol.  6,  pp.  3103  to  3111,  and  3147  ;  Arthur  Brown,  vol.  6,  pp.  3602  to  3605  ; 
Clement,  vol.  6,  pp.  3202  to  3233). 

The  rates  appearing  on  the  face  of  the  estimates  above  referred  to  are  largely  in 
excess  of  the  rates  fixed  by  those  Witnesses  as  the  usual  rates  at  the  time  of  construc¬ 
tion  (see  evidence  of  Clement,  vol.  6,  pp.  3206  to  3210). 

The  persons  mentioned  by  the  Commission,  Messrs.  Strowbridge, 
Brown  and  Clement,  superintended  different  portions  of  the  construction 
of  the  road. 

Let  us  take  for  example  the  single  item  of  grubbing.  It  had,  up  to 
the  time  the  prices  were  changed,  been  done  by  C.  Crocker  &  Co.,  and  also 
by  outside  parties,  for  $200  per  section.  At  the  above  meeting  the  price 
was  advanced  to  $2,000  per  section.  The  Secretary  of  the  Company,  E.  II. 
Miller,  Jr.,  was  one  of  the  four  Directors  present;  but  when  Mr.  "Crocker 
put  in  his  next  bill  against  the  Company,  rather  than  dare  assume  the 
responsibility  of  allowing  such  a  ridiculous  price  for  the  grubbing,  the 
Secretary  wrote  out  a  notice  to  himself  and  had  Mr.  Stanford  sign  it. 
The  following  is  a  copy,  the  original  of  which  is  in  the  Secretary’s  hand¬ 
writing  : 

Office  C.  P.  R.  R.  Co. , 
Sacramento,  March  6,  1866. 

E.  H.  Miller,  Jr.,  Secretary : 

I  hereby  notify  you  that  pursuant  to  and  in  accordance  with  an  order  of  the 
Board  of  Directors,  passed  at  the  meeting  held  June  6,  1865,  the  price  for  grubbing 
and  clearing  Section  No.  50  and  beyond  has  been  agreed  upon,  between  Charles 
Crocker  and  myself  as  President  of  the  Company,  at  two  thousand  dollars  ($2,000)  per 
section. 

Leland  Stanford,  President. 


CENTRAL  PACIFIC  RAILROAD. 


9 


As  an  instance  of  the  loose  manner  in  which  the  Directors  dealt  with 
Crocker  &  Co.,  I  will  cite  the  following  : 

A  resolution  adopted  September  5,  1864,  refers  to  the  communication 
from  C.  Crocker  &  Co.,  of  September  1,  1864.  After  cancelling  the  con¬ 
tract,  as  requested  in  the  communication,  the  resolution  continues  : 

also  to  settle  with  said  C.  Crocker  at  the  same  prices  and  in  tlie  same  manner  for  the 
work  done  and  materials  furnished  in  constructing  the  railroad  of  tie  Company,  until 
tie  further  order  of  tie  Board  of  Directors,  or  until  further  arrangements  shall  be 
made  for  tie  construction  of  said  railroad. 

Thus  was  Crocker  released  from  his  contract  without  any  apparent 
reason,  or  stating  even  what  was  due  or  paid  to  him  from  the  $400,000 
mentioned  in  the  contract.  It  seems  to  have  escaped  the  notice  of  the 
Commission  while  investigating,  that,  from  the  time  of  passing  the  above 
resolution  until  the  formation  of  the  Contract  and  Finance  Company,  the 
Directors  allowed  Mr.  Crocker  to  go  on  with  the  work  of  construction 
without  any  contract.  Consequently,  when  they  (the  Commissioners)  were 
endeavoring  to  learn  something  about  the  missing  Crocker  contract,  they 
evidently  supposed  that  it  covered  the  construction  as  far  as  the  State  line 
of  California ;  whereas  the  only  contract  made  with  C.  Crocker  &  Co.  was 
the  one  referred  to  heretofore,  covering  the  first  eighteen  miles  of  the 
road.  It  is  true  that  Crocker  carried  on  the  work  to  the  State  line,  but 
not  under  contract;  the  Company’s  minutes  will  show  this. 

Deferring  to  the  construction  by  Crocker,  the  Commission,  page  71  of 
their  report,  state  : 

Leland  Stanford  testified  that  Charles  Crocker  had  no  partners  ;  but  it  appears 
from  his  own  evidence  (vol.  5,  p.  2637)  that  all  the  stock  received  by  Claries  Crocker 
under  these  contracts  was  turned  over  to  the  corporation  known  as  the  Contract  and 
Finance  Company,  in  which  Stanford,  Huntington,  Hopkins,  and  Crocker,  were  sub¬ 
stantially  the  sole  stockholders.  The  amount  of  stock  so  turned  over  was  about 
$14,000,000.  (See  evidence  of  Stanford,  vol.  5,  pp.  2648  and  2649.)  It  is  clearly  estab¬ 
lished  by  the  evidence  that  tliese  four  gentlemen  were  at  all  times  equally  interested 
in  the  results  of  these  contracts,  and  that  whether  the  formal  relation  of  partner 
existed  between  them  or  not,  it  was  understood  and  agreed  between  them  that  they 
should  share  equally  in  all  the  profits  of  the  enterprise. 

The  Crocker  contracts  were  awarded  to  C.  Crocker  &  Co.  by  the  votes  of  Stanford, 
Huntington,  Hopkins,  and  Crocker.  The  profits  arising  out  of  these  contracts  were 
divided  among  these  four  persons  ;  and  this  same  singular  feature  will  be  found  to 
pervade  all  contracts  for  construction,  for  repairs,  for  branch  lines,  for  leases  of  the 
auxiliary  lines,  for  the  express  business,  for  the  sale  of  material,  and  for  the  sale  of 
coal,  as  to  all  of  which,  through  the  intervention  of  construction  companies,  or  devel¬ 
opment  companies  (in  all  of  which  these  four  persons  were  substantially  the  only 
stockholders),  all  of  the  contracts  lave  been  awarded  by  the  votes  of  Stanford,  Hun¬ 
tington,  Hopkins,  and  Crocker.  (Stanford’s  Evidence,  vol.  5,  p.  2789.)  In  all  of  these 
cases  the  profits  resulting  therefrom  lave  been  divided  between  them.  In  some  excep¬ 
tional  cases  there  has  been  a  fifth  party  in  interest, — either  Mr.  E.  B.  Crocker,  the 
brother  of  Charles  Crocker,  or  Mr.  David  M.  Colton, — in  which  cases  the  profits  have 
been  divided  by  fifths  instead  of  by  fourths. 

In  the  opinion  of  the  Commission,  the  course  pursued  in  this  respect  is  wholly 
indefensible.  The  agreement  of  the  Company,  when  it  received  the  munificent  aid 
extended  by  the  United  States,  was  to  repay  the  loan  and  so  much  of  the  interest  as 
had  not  been  repaid  by  transportation  or  percentages  of  net  earnings  at  the  expiration 
of  thirty  years.  The  course  pursued  by  Stanford,  Huntington,  Hopkins,  and  Crocker 
was  necessarily  absolutely  destructive  of  any  possible  security.  .  .  . 

Following  are  some  of  the  resolutions  allowing  bills  of  0.  Crocker  &  Co. 
for  extra  work.  Since  there  was  no  contract  defining  what  would  consti¬ 
tute  “  extra  work,”  the  Directors  were  at  liberty  to  include  anything  they 
cared  to. 

Charles  Crocker  presented  a  bill  for  extra  work  for  months  of  January  and  February 
1* 


10 


CENTRAL  PACIFIC  RAILROAD. 


amounting  to  $115,250.05,  which,  on  motion  of  Mark  Hopkins,  was  allowed  and  ordered 
paid.  (Resolution,  March  22,  1866.) 

The  President  reported  on  bills  for  extra  work,  presented  by  C.  Crocker  &  Co.  for 
the  months  of  March,  April,  and  May,  amounting  in  the  aggregate  to  $133,586.93  ;  that 
the  same  were  correct  and  reasonable  and  should  be  allowed  ;  when,  on  motion  of 
Mark  Hopkins,  the  same  were  allowed,  and  the  President  and  Secretary  directed  to 
draw  their  warrant  on  the  Treasurer  for  the  amount.  (Resolution,  June  27,  1866.) 

President  S  an  ford  presented  a  bill  from  C.  Crocker  &  Co.  for  work  done  and 
materials  furnished  on  line  of  road,  and  stated  that  the  same  had  been  examined  and 
found  correct ;  the  same  was  allowed,  and  the  President  and  Secretary  was  ordered  to 
draw  their  warrant  on  the  Treasurer  for  the  amount  of  said  bill,  to  wit  :  $296,504.22.” 
(Resolution,  May  10,  1867.) 

Leland  Stanford,  President,  presented  C.  Crocker’s  bill  for  extra  work,  amounting 
to  $173,785.27,  and  reported  that  he  had  examined  the  same  and  found  it  to  be  correct, 
and,  on  motion,  the  bill  was  audited  and  allowed  aud  ordered  paid.  (Resolution, 
January  3,  1868.) 

Similar  resolutions  were  passed,  approving  bills  of  the  Contract  and 
Finance  Company  for  extraordinary  amounts.  One  resolution  allowed 
payment  to  that  Company,  amounting  to  $11,038,630.13,  “  for  final  pay¬ 
ment  on  contract.”  After  taking  into  consideration  that  the  four  principal 
Directors  had  an  understanding  as  to  the  division  of  the  profits  between 
them,  the  reader  will  at  least  assume  that  the  Central  Pacific  owed  the 
men  nothing  after  paying  such  bills  for  the  work.  And  yet  they  have  since 
pictured  the  hardships  they  underwent  at  the  time;  whereas  the  scanty 
records  found  in  their  minute-books,  which  happily  were  not  4 ‘lost,”  show 
how  they  fared.  One  is  forced  to  agree  with  the  Majority  Commission,  i.e., 
that  their  course  alone  prevented  the  road  from  keeping  its  part  of  the 
agreement  with  the  Government. 

The  Directors  let  a  contract,  dated  September  26,  1863,  to  Collins  & 
Bro.  of  Stockton,  Cal.,  to  build  sections  Nos.  19  and  20  of  the  road,  at 
fixed  prices.  Mr.  Crocker  induced  them  to  assign  their  contract  to  the 
Central  Pacific  Railroad  Company  of  California.  The  following  is  a  copy 
of  the  assignment  appearing  on  the  back  of  Collins’  contract : 

For  a  valuable  consideration  we  hereby  release  and  surrender  the  within  contract 
to  the  Central  Pacific  Railroad  Company  of  California,  and  hereby  authorize  the  said 
Company  to  take  immediate  possession  of  the  work  herein  described.  December  23, 
1863.  C.  Collins  &  Bro. 

No  mention  of  such  an  assignment  appears  in  the  Directors’  minutes 
so  that  Mr.  Crocker  must  have  represented  the  Company  on  this  occasion 
also.  However,  he  finished  the  work  at  an  additional  cost  to  the  Company 
of  over  $4,300,  as  follows : 


To  cost,  as  per  contract  with  Collins  &  Bro. : 

85  %  cash .  $11,180.05 

15  %  stock .  1,972.95 

Total  cost  sections  19  and  20 .  $13,153.00 

Allowed  Crocker  &  Co.,  as  per  final  estimates  : 

Section  19 .  $1,438.17 

Section  20 . 16,037.13 

Actual  cost  sections  19  and  20 . $17,475.30 


Before  passing  from  the  subject  of  construction  work  done  by  C. 
Crocker  &  Co.,  I  will  present  to  the  reader  copies  of  two  reports  submitted 
by  the  Company’s  Chief  Engineer.  The  information  given  therein  is  very 
important  in  the  absence  of  the  books  showing  the  cost  of  construction. 
The  reports  include  some  of  the  heaviest  work  encountered  on  the  line  ;  and 
no  one  was  better  qualified  to  estimate  the  probable  cost  to  the  Company 
than  Mr.  Judah.  The  only  real  difficult  construction  was  in  crossing  the 


CENTRAL  PACIFIC  RAILROAD. 


11 


Sierra  Nevada  mountains ;  on  either  side  the  course  is  principally  over 
plains,  and  it  was  a  common  feature  for  the  workmen  engaged  in  laying 
the  rails  to  try  to  exceed  each  day  the  distance  covered  on  the  previous 
one.  Mr.  Judah  had  a  high  reputation  as  a  civil  engineer,  was  thoroughly 
acquainted  with  the  route  surveyed,  and  understood  the  cost  for  the  neces¬ 
sary  material  and  labor  used  in  construction.  One  of  the  reports,  it  will 
be  observed,  is  not  dated.  As  it  contains  a  reference  to  sections  19  and  20, 
which  were  awarded  under  contract  to  Collins  &  Bro.  as  above,  on  Sep¬ 
tember  26,  1863,  the  report  was  evidently  made  after  September  19, 
1863,  the  elate  of  Mr.  Crocker’s  present  to  Mr.  Judah.  Whether  this  in¬ 
fluenced  the  Chief  Engineer  in  fixing  his  estimates  as  shown,  at  over 
$500,000  above  his  previous  allowance,  cannot  of  course  be  known.  Mr. 
Judah’s  death  occurred  in  November,  1863.  The  reports  follow  : 

First  Division. 

The  First  Division  of  fifty  miles  will  extend  from  the  foot  of  K  Street,  City  of  Sacra¬ 
mento,  to  what  is  termed  Applegate  Summit,  about  twelve  miles  via  Railroad  beyond 
Auburn,  and  about  eight  miles  below  lllinoistown. 

It  will  embrace  about  thirty  miles  of  moderately  light  work,  while  the  upper 
twenty  miles  may  be  fairly  considered  as  heavy  work,  requiring  at  least  one  year  as 
the  shortest  time  in  which  the  grading  can  be  completed. 

The  grading,  masonry,  bridging,  ties  and  track  laying  of  the  first  eighteen  miles, 
or  to  the  line  of  California  Central  Railroad,  is  under  sub-contract,  to  be  completed 
by  August  15,  1863,  and  is  progressing  with  satisfactory  rapidity. 

The  iron  chairs  and  spikes  and  equipment  for  same  should  be  shipped  during  the 
months  of  March  anfl  April,  1863,  in  order  to  arrive  here  in  time  to  be  laid  down  with¬ 
out  delay. 

The  grading,  masonry,  etc.,  upon  the  next  twelve  miles,  or  to  the  Auburn  Station, 
upon  present  Sacramento,  Placer,  and  Nevada  Railroad,  by  working  a  heavy  force,  can 
be  completed  in  about  four  months,  although  it  would  be  much  safer  to  allow  six 
months’  time  for  its  completion. 

In  order  to  complete  it  so  that  the  work  of  track  laying  can  go  on  uninterruptedly, 
it  should  be  placed  under  contract  by  June  1,  and  completed  by  November  1,  1863. 
The  ties  should  be  contracted  to  be  delivered  during  the  months  of  September  and 
October.  The  iron  chairs  and  spikes  should  be  shipped  from  New  York  in  May  and 
June,  1863. 

The  upper  twenty  miles  of  road  will  require  at  least  a  year  to  build. 

Allowing  three  months  for  track  laying,  and  it  will  require  to  be  placed  under  con¬ 
tract  by  September  1,  1863.  The  iron  chairs  and  spikes  and  balance  of  equipment 
should  be  shipped  from  New  York  during  the  months  of  March  and  April,  1864. 

I  estimate  the  entire  cost  of  this  division  at  $2,500,000. 

Second  Division. 

The  second  division  of  fifty  miles  will  extend  to  about  twenty-eight  miles  above 
Dutch  Flat,  or  within  about  ten  miles  of  the  Summit. 

This  division  is  required  to  be  completed  by  December  1,  1865,  or  say  in  two  years 
and  eight  months,  and  should  be  placed  under  contract  by  November,  1863. 

Some  of  the  heaviest  work  on  the  whole  line  will  be  found  on  the  first  twenty-five 
miles  of  this  division,  which  reaches  to  about  four  miles  above  Dutch  Flat,  or  to  the 
snow  line,  comprising  the  heavy  work  on  Long  Ravine,  Secrettown,  and  probably  four 
tunnels. 

The  upper  twenty-five  miles  comprises  the  heavy  work  upon  Bear  River,  Side  Hills, 
and  the  South  Yuba,  extending  up  to  what  is  known  as  Wilson’s  Cutoff,  on  the  South 
Yuba. 

The  iron  chairs  and  spikes  for  this  division  should  be  shipped  from  New  York  by 
February,  March  and  April  and  May  of  1864,  at  the  rate  of  about  1,200  tons  per 
month,  and  the  equipment  at  about  the  same  times. 

It  will  take  about  six  months  to  lay  the  track.  The  ties  for  the  lower  half  of  this 
division  will  probably  require  to  be  of  redwood,  and  should  be  contracted  to  be  deliv¬ 
ered  in  May,  June,  and  July,  1864. 

The  upper  twenty-five  miles  of  this  division  (as  also  the  next  twenty-five  miles  of 
the  third  division)  will  embrace  what  is  known  as  the  snow  line,  and  cannot  be 


12 


CENTRAL  PACIFIC  RAILROAD. 


worked  with  the  same  facility  or  at  the  same  rate  of  progress  as  the  lower  divisions 
of  this  road. 

Eight  months  of  the  year,  from  April  to  November,  is  the  utmost  length  of  season 
that  can  be  counted  on  for  working.  I  regard  it,  therefore,  as  absolutely  necessary 
that  there  should  be  at  least  two  seasons  allowed  for  performing  the  grading  of  this 
(second)  division,  and  that  upon  the  upper  twenty-five  miles  all  the  lighter  portions  of 
the  grading  be  performed  in  the  summer  time. 

I  estimate  the  entire  cost  of  this  division  in  round  numbers  at  $5,000,000. 


Third  Division. 

The  third  division  extends  from  a  point  about  ten  miles  westerly  of  the  Summit 
to  a  point  near  Stott’s  Crossing  of  the  Truckee. 

The  first  ten  miles  to  the  Summit  will  not  contain  so  great  a  proportion  of  rock 
cutting  as  exists  upon  the  middle  division. 

The  next  three  miles,  from  the  Summit  easterly,  will  he  very  heavy  and  difficult; 
and  ten  miles  further,  of  pretty  heavy  work,  carries  us  to  the  Truckee  River,  at  about 
123  miles  from  Sacramento,  and  at  the  foot  of  the  heavy  grade. 

This  division  will  require  at  least  two  years  to  complete,  and  should  be  placed 
under  contract  by  November  1,  1864. 

I  think  that  the  heaviest  rock  cuttings  upon  this  division  can  be  worked  in  the 
winter  time. 

The  ties  for  the  entire  division  can  be'procured  along  the  line. 

Its  cost  will  not  fall  short  of  $5,000,000. 

Very  respectfully, 

(Signed)  Theo.  D.  Judah, 

Chief  Engineer  C.  P.  R.  R.  Co. 

March  24,  1863. 

Thus,  it  will  be  learned,  with  the  third  division  ends  the  heavy  grade, 
the  part  which  the  Directors  have  since  laid  so  much  stress  upon  as  to 
the  expense,  which  Mr.  Judah  considered  to  cost  about  $5,000,000.  The 
Government  will  do  well  to  take  note  of  this.  The  other  report,  without 
date,  is  as  follows : 

COPY. 

Hon.  Leland  Stanford,  President  C.  P.  R.  R.  Co. 

Dear  Sir:  Herewith  accompanying  please  find  approximate  estimates  of  cost  of 
Sections  19  to  68  inclusive,  as  per  your  request;  also  the  relative  proportions  of  cash, 
stock,  and  bonds. 

The  summary  will  be  found  on  the  last  page. 

Very  truly  yours, 

(Signed)  Theo.  D.  Judah, 

Chief  Engineer  C.  P.  R.  R.  Co. 


Approximate  estimates  of  the  amounts  of  cash  and  stock,  accruing  under  contracts, 
Sectious  19  to  31,  inclusive. 


Sections. 

19  and  20,  C.  Collins . 

21,  22,  23,  24,  Turton,  Ryan  &  Knox. . 

25,  26,  27,  Chas.  Bates . 

28  and  29,  S.  D.  Smith . 

30  and  31,  C.  Crocker  &  Co . 

Totals . 


85  per  cent. 
Cash. 

15  per  cent. 
Stock. 

Total. 

.  .$11,180.05 

$1,972.95 

$13,153 

..  23,171.85 

4,089.15 

27,261 

..  30,648.05 

6,584.05 

37,233 

8,842.00 

58,950 

..  87,576.35 

15,454.65 

103,031 

.$202,684.30 

$36,944.00 

$239,628 

The  above  estimates  are  from  approximate  quantities  at  the  contract  prices  at 
which  the  above  sections  were  awarded.  They  are  intended  to  be  liberal,  and  the  final 
estimates  should  come  within  the  above  figures. 

(Signed)  Theo.  D.  Judah, 

Chief  Eng' r  C.  P.  R.  R. 


Approximate  estimate  of  the  cost  of  Sections  32  to  50,  inclusive,  at  the  following 
prices  • 


CENTRAL  PACIFIC  RAILROAD. 


13 


687,500  cubic  yards  earth  excavation,  at  $0.38 

180,000  “  cement  “  “  0.75 


222,500 

ii 

semi-solid  rock  excavation, 

1.35 

173,500 

solid  rock  excavation, 

i  i 

2.00 

5,000 

ii 

tunnelling, 

l  i 

7.50 

4,125 

ii 

exc.  foundation, 

1.00 

5,666 

ii 

culvert  masonry, 

ii 

15.00 

1,555 

ii 

rubble  bridge  masonry, 

ii 

20.00 

2,835 

ii 

cement  mortar, 

€t 

5.00 

191,500 

feet  B.  M. 

timber  in  structures, 

ii 

65.00 

15,200 

<  6 

plank, 

ii 

50.00 

14,300 

lbs. 

iron, 

ii 

0.12 

88,000 

cross  ties, 

a 

0.80 

33 

miles 

track  laid, 

800.00 

Total  cash  cost  at  above  prices 


$261,250 

138,000 

300,375 

347,000 

37,500 

4,125 

84,990 

31.100 

14,175 

12,447 

760 

1,716 

70.400 

26.400 


$1,330,238 


In  the  proportion  of  \  cash,  f  stock  at  50  cents  on  the  dollar,  and  £  bonds  at  60 
cents  on  the  dollar,  the  amounts  will  be  as  follows  : 


i  cash .  $669,080 

f  stock  at  50  cents  on  the  dollar .  1,003,620 

i  bonds  at  60  “  “  .  278,783 


Or  a  total  of . $1,951,463 

The  above  estimate  of  quantities  is  liberal. 

(Signed)  T.  D.  Judah, 

Chief  Eng'r  C.  P.  R.  R. 


Approximate  estimate  of  the  cost  of  Sections  51  to  56,  inclusive,  at  the  following 
prices  : 


185,000  cubic  yards  earth  excavations, 

63,000  “  cement  “ 

at 

$0.38 

$70,300 

“ 

0.75 

51,000 

42,000 

ii 

semi-solid  rock  excavation, 

1.50 

63,000 

31,159 

ii 

solid  rock  excavation, 

<< 

2.00 

63,318 

2,000 

foundation, 

<( 

0.38 

760 

5,000 

a 

tunnelling, 

tt 

7.50 

37,500 

2,500 

“ 

culvert  masonry, 

“ 

15.00 

37,500 

850 

t%i 

rubble  bridge  masonry, 

20.00 

17,000 

1,500 

a 

cement  mortar, 

it 

5.00 

7,500 

70,000 

feet  B.  M. 

timber  in  structures, 

tt 

65.00 

4,750 

10,000 

it 

plank, 

“ 

50.00 

500 

5,000 

lbs. 

iron, 

“ 

0.12 

600 

14,400 

cross  ties, 

“ 

0.80 

11,520 

6 

miles 

track  laid, 

tt 

800.00 

4,800 

Total  cost  at  above  prices . $396,048 


In  the  above  proportion  of  |  cash,  f  stock  at  50  cents  on  the  dollar,  and  j  bonds  at 
60  cents  on  the  dollar,  the  amounts  will  be  as  follows  : 


^  cash . $198,024 

|  stock  at  50  cents  on  the  dollar .  297,036 

i  bonds  at  60  “  “  82,510 

Or  a  total  of . $577,570 


(Signed)  Theo.  D.  Judah, 

Chief  Eng’r  C.  P.  R.  R. 

Approximate  estimate  of  cost  of  Sections  57  to  68,  inclusive.  Tlie  quantities  upon 
final  location  of  this  portion  of  the  work  not  yet  having  been  calculated,  the  cost  of  this 
division  of  twelve  miles  has  been  taken  from  the  approximate  estimate  in  report  of 
the  Chief  Engineer,  date  of  October  22,  1862,  as  follows  : 

Long  Ravine  to  Gravel  Ridge,  9  miles,  at  $110,000 . $990,000 

Gravel  Ridge  to  Dutch  Flat,  3  “  “  85,000 .  255,000 


$1,245,000 


14 


CENTRAL  PACIFIC  RAILROAD. 


If  this  work  is  let  at  tlie  prices  of  preceding  subdivision,  in  the  proportion  of  |  cash, 
f  stock  at  50  cents  on  the  dollar,  and  £  bonds  at  60  cents  on  the  dollar,  the  amount 
will  be  as  follows: 


j  cash . $622,500 

|  stock .  933,750 

£  bonds .  259,375 


A  total  of . $1,815,625 


The  above  estimate  contemplates  permanent  embankments  and  structures  of 
masonry  and  one  tunnel. 

(Signed)  Theo  D.  Judah. 

Chief  Eng'r  C.  P.  It.  It. 


Summary  of  approximate  estimate  of  cost  of  Sections  19  to  68,  inclusive  : 


Cash,  85#. 

Stock,  15#. 

Bonds. 

Total. 

19  to  31  inc . . 

$36,944 

$239,628 

X  Cash. 

%  Stock— 50c. 

X  Bonds— 50c. 

31  to  50  “  . 

$1,003,620 

$278,783 

$1,951,463 

51  to  56  “  . . . 

.  198,024 

297,036 

82,510 

577,570 

57  to  68  “  . 

.  622,500 

933,750 

259,375 

1,815,625 

$1,692,288 

$2,271,350 

$620,688 

$4,584,306 

E  EC  APITUL  ATION. 

Cash . 

. . $1,692,288 

Per  Mile, 

.$33,845 

Stock . 

.  2,271,350 

ii 

45,427 

Bonds . 

.  620,688 

t  C 

12,413 

$4,584,306 

$91,685 

N.  B. — Original  estimates  for  same  distance,  including  iron  equipment,  etc., 
$4,045,000. 


(Signed)  Theo.  D.  Judah, 

Chief  Eng'r  C.  P.  It.  B. 


If  the  Government  wishes  to  arrive  at  a  proper  cost  to  the  Company 
for  constructing  the  entire  Central  Pacific,  the  above  two  reports  would 
furnish  a  satisfactory  basis.  They  should  be  accepted  instead  of  the  tes¬ 
timony  of  the  Directors  and  their  employes  without  the  construction 
books  and  contracts  to  verify  their  statements. 

It  was  at  first  the  intention  of  the  Directors  to  continue  the  work  of 
construction  as  heretofore,  east  of  the  California  State  line,  and  the  draft 
of  contract  (with  C.  Crocker  &  Co.)  was  drawn  up  by  Mr.  E.  B.  Crocker, 
with  the  following  charges : 

$51,000  in  Gold. 

15,000  in  Capital  Stock  of  the  Company. 

Total,  $66,000  per  mile  to  a  connection  with  the  Union  Pacific, 


These  figures  were  afterwards  ruled  out  and  this  significant  notation  was 
made  :  “  Leave  a  whole  blank  line  for  each  of  these  two  sums.”  As  has 
since  been  learned,  the  Central  Pacific  was  finally  charged  just  $20,000 
more  per  mile  than  the  above,  or  $86,000  per  mile  ;  a  total  additional 
charge  of  $5,540,000  for  the  552  miles  yet  to  be  built. 

The  fraudulent  management  by  the  Directors  had  begun  to  assume 
such  proportions  that  few  people  had  any  faith  in  them,  and  it  looked 
extremely  doubtful  if  they  really  intended  to  finish  the  road.  They  evi¬ 
dently  feared  that  they  would  soon  have  to  account  to  the  stockholders  or 
the  Government  for  money  they  had  appropriated  to  themselves.  The 


CENTRAL  PACIFIC  RAILROAD. 


15 


enormous  profits  of  the  past,  and  the  prospects  for  the  future,  prevented 
them  from  allowing  others  to  assist  in  the  work.  To  give  the  contract 
the  appearance  of  outside  capital  being  interested  therein  they  changed  the 
title  in  the  above  contract  from  “  0.  Crocker  &  Co.”  to  the  “  Contract  and 
Finance  Company,”  adding  the  additional  $20,000  in  the  charges  per  mile, 
otherwise  the  conditions  in  the  above  draft  were  not  materially  altered. 
The  Contract  and  Finance  Company  was  incorporated  on  December  3, 
1867,  with  W.  E.  Brown,  T.  J.  Millikin,  and  B.  R.  Crocker  as  the  stockhold¬ 
ers  :  it  is  hardly  necessary  to  say  that  they  were  not  the  stockholders,  but 
the  dummies  of  Stanford  &  Co.  It  was  simply  an  attempt  to  throw  off 
the  yoke  of  suspicion  that  the  Directors  were  to  be  the  only  beneficiaries 
under  the  contract,  as  heretofore. 

At  their  Directors’  meeting,  held  December  3,  1867,  Stanford  offered 
the  following  resolution : 

The  President  reported  that  lie  had  made  arrangements  for  a  contract  with  the 
“  Contract  and  Finance  Company”  for  the  construction  and.  equipment  of  the  railroad 
and  telegraph  line  of  this  Company,  lying  east  of  the  eastern  boundary  line  of  Califor¬ 
nia,  and  presented  a  draft  of  such  contract ;  the  same  having  been  read  and  considered, 
the  following  resolution  and  order  was  unanimously  adopted,  to  wit  : 

Resolved  and  ordered  that  this  Company  hereby  consents  and  agrees  with  the  Con¬ 
tract  and  Finance  Company  to  the  terms,  stipulations,  and  conditions  of  the  articles  of 
agreement  submitted  by  the  President  to  this  Board,  and  the  President  and  Secretary 
are  hereby  authorized  and  directed  to  execute  the  said  contract  on  behalf  of  this  Com¬ 
pany  and  to  attach  the  corporate  seal  thereto. 

The  false  front  assumed  by  Stanford  &  Co.  on  the  above  occasion  is 
precisely  their  method  of  to-day,  which  I  will  presently  expose,  in  the 
matter  of  leasing  the  Central  to  the  Southern  Pacific  Company.  Although 
the  Contract  and  Finance  Company  was  composed  of  the  principal 
Directors,  it  is  doubtful  if  the  Central  could  have  fared  any  worse  at  the 
hands  of  persons  with  no  interest  in  the  road.  By  their  operation 
of  this  private  Company  they  hopelessly  burdened  the  road  and  darkened 
its  future ;  and  yet  to-day  finds  them  still  in  control,  enormously  enriched 
by  their  misdeeds,  and  fighting  down  every  measure  calculated  to  either 
collect  the  debt,  or  reasonably  extending  its  time  of  payment.  Even  this 
much  might  have  been  overlooked  by  an  indulgent  public  had  the 
Directors  reformed  in  their  management  of  the  roads  to-day. 

The  operations  by  the  Contract  and  Finance  Company  are  too  well 
known  to  need  any  special  mention;  I  will  pass  it  in  silence,  quoting  first 
an  extract  from  the  report  of  the  Majority  Commission,  page  72  : 

Under  this  contract  (Contract  and  Finance  Company)  the  road  was  constructed 
between  the  points  indicated,  a  total  of  552  miles,  at  a  cost  of  $23,726,000  in  stock, 
and  $23,726,000  in  gold.  It  is  a  noticeable  fact  that  Mr.  Miller  testifies  that  at  the 
time  he  voted  for  this  contract,  and  at  the  time  he  voted  for  the  Crocker  contract  and 
its  extension,  he  was  not  informed  that  the  Directors  of  the  Central  Pacific  were  also 
beneficiaries  under  the  contracts.  (See  evidence  of  E.  H.  Miller,  Jr.,  vol.  5,  p.  3061, 
3062.)  The  Commission  have  made  diligent  effort  to  ascertain  the  actual  cost  of  con¬ 
struction  of  the  railroad  to  the  Contract  and  Finance  Company,  and,  in  their  opinion, 
have  arrived  at  a  conclusion  which  cannot  be  far  from  the  truth.  An  accurate  answer 
to  this  question  would  be  shown  by  the  books  of  Charles  Crocker  &  Co.,  and  of  the 
Contract  and  Finance  Company.  These  books  were  not  produced,  and,  in  the  opinion 
of  the  Commission,  were  purposely  destroyed  by  direction  of  Stanford,  Huntington, 
Hopkins,  and  Crocker.  The  evidence  on  this  point  appears  to  be  conclusive. 

To  this  I  can  add  a  chapter  regarding  the  destruction  of  a  State  record- 
book  which  the  Directors  also  considered  objectionable.  Neither  the  In¬ 
vestigation  Commission,  the  stockholders,  nor  the  State  authorities  have 
up  to  the  present  time  ascertained  that  such  a  book,  once  in  existence,  was 
also  “suppressed.” 


16 


CENTRAL  PACIFIC  RAILROAD. 


Section  10  of  the  Act  of  the  Legislature  of  California,  dated  May  20, 
1861,  and  under  which  the  Company  was  incorporated,  reads  as  follows : 

Section  10.  Tlie  Directors  shall  also  cause  to  be  kept  a  hook,  to  be  called  “  Record 
of  Corporation  Debts,”  in  which  the  Secretary  shall  record  all  written  contracts  of  the 
Directors,  and  a  succinct  statement  of  the  debts  of  the  Company,  the  amount  thereof, 
and  with  whom  made,  which  book  shall  at  all  times  be  open  to  the  inspection  of  any 
stockholder,  or  party  in  interest.  When  any  contract  or  debt  shall  be  paid,  or  dis¬ 
charged,  the  Secretary  shall  make  a  memorandum  thereof,  in  the  margin,  or  in  some 
convenient  place  in  the  record,  where  the  same  is  recorded.  No  contract  shall  be 
binding  upon  the  Company  unless  made  in  writing. 

As  may  be  inferred  from  the  foregoing,  this  book,  if  produced,  would 
throw  considerable  light  on  the  cost  of  the  road;  should,  therefore,  a 
former  stockholder  of  the  Central  Pacific  of  California,  or  the  Government, 
demand  of  Stanford  &  Co.  the  production  of  this  book,  their  answer  can 
only  be  surmised.  It  is  not  “missing”  as  in  the  case  of  the  Construction 
Companies’  books,  but  was  kept  as  required  until  the  management  became 
altogether  indifferent  as  to  the  consequences,  so  complete  were  their 
entanglement.  When  they  decided  to  make  way  with  the  construction 
books  and  papers,  they  cut  out  the  leaves  of  the  State  book  containing 
entries,  pages  48  to  111,  inclusive,  and  also  scratched  out  the  labelling 
appearing  on  the  back.  In  this  mutilated  condition  the  book  was  stored 
away  in  the  Secretary’s  back  office.  The  Commission  evidently  did  not 
read  over  the  requirements  of  the  Act  of  1861,  for  I  am  certain  they  did 
not  learn  of  the  above  facts.  Notwithstanding  its  present  condition,  I 
possess  ample  evidence  to  prove  the  facts  as  I  have  stated  them.  Such  a 
method  of  concealing  their  dishonesty  reminds  me  of  the  habit  of  the 
ostrich,  on  being  run  down,  burying  its  head  in  the  sand  to  escape  dis¬ 
covery. 

During  the  entire  construction  of  the  road  the  Directors  put  as  little 
information  as  possible  on  record  when  writing  their  proceedings  in  the 
minute-book;  considering  their  acts  at  the  time,  however,  it  is  not  sur¬ 
prising.  An  example  is  furnished  in  the  resolution  of  February  18,  1869, 
as  follows  : 

Resolved  and  Ordered ,  That  the  President  and  Secretary  are  authorized  to  exe¬ 
cute  and  deliver  to  the  Contract  and  Finance  Company  the  promissory  notes  of  this 
Company  for  the  amount  of  cash  due  said  Company,  in  such  sums  as  said  Company  may 
require,  payable  one  year  from  date  to  said  Company,  or  bearer,  with  interest,  at  ten 
per  cent,  per  annum,  payable  quarterly,  principal  and  interest  payable  in  United  States 
gold  coin. 

It  would  be  well  if  the  Government  should  now  hold  the  Directors  as 
strictly  to  their  agreement  as  they  treated  the  Central  in  all  of  its  transac¬ 
tions  with  the  Contract  and  Finance  Company.  Because,  by  their  heavy 
charges,  they  had  cleaned  out  the  money  on  hand  in  the  Central  Pacific 
treasury,  it  did  not  prevent  Stanford  &  Co.  from  exacting  ten  per  cent, 
interest  on  the  balance  to  be  paid.  The  amount  of  indebtedness  does  not 
appear,  but  it  is  safe  to  assume  that  it  represented  all  of  the  road’s  profits 
for  the  year  to  which  the  debt  was  extended. 

It  has  always  been  the  custom  of  the  Directors  to  loan  the  Central’s 
surplus  to  their  private  Construction  Companies,  including  the  money  set 
apart  for  the  redemption  of  the  Company’s  bonds.  The  practice  was 
religiously  followed  during  the  time  of  the  Contract  and  Finance  Company  ; 
the  only  security  the  road  received  was  its  note  and  capital  stock,  issued 
on  account  of  construction.  As  far  as  I  could  learn,  the  money  thus  bor¬ 
rowed  was  not  returned.  Neither  have  I  ever  succeeded  in  satisfying 
myself  that  Stanford,  Huntington,  and  Hopkins  redeemed  their  personal 


CENTRAL  PACIFIC  RAILROAD. 


17 


notes  they  gave  to  the  Central  when  the  Contract  and  Finance  Company 
dissolved  partnership,  with  a  debt  owing  to  the  former  amounting  to 
$5,700,000.  The  Central  Pacific  resolution  reads  as  follows,  dated  Septem¬ 
ber  9,  1873  : 

W.  E.  Brown  presented  the  following,  which  was  unanimously  adopted,  to  wit: 

Resolved,  That  the  Secretary  be  directed  to  receive  from  the  Contract  and  Finance 
Company  the  notes  of  Leland  Stanford,  Mark  Hopkins,  and  C.  P.  Huntington,  amount¬ 
ing  to  $5,700,000,  endorsed  by  said  Contract  and  Finance  Company,  on  settlement  of 
its  indebtedness  to  this  Company,  and  credit  the  amount  of  same  to  the  account  of 
said  Contract  and  Finance  Company. 

That  such  a  Construction  Company  as  this  could  have  failed,  when 
it  existed  for  no  other  purpose  than  to  make  and  turn  over  to  the 
Directors  of  the  Company  the  profits  from  building  the  road,  is  impos¬ 
sible, — unless  the  Directors,  too,  became  involved.  The  fact  that  they 
started  in  with  comparatively  nothing,  and  now  gave  their  notes  on  behalf 
of  the  embarrassed  concern,  answers  the  question.  Why  did  not  the  Con¬ 
struction  Company  meet  its  own  obligation,  instead  of  the  Directors  divid¬ 
ing  between  themselves  the  millions  of  dollars  which  passed  into  its 
hands  ? 

The  amount  was  charged  on  the  Central  Pacific  books  to  “  bills  receiv¬ 
able.  ”  From  this  account  it  gradually  disappears,  though  an  effort  by  the 
writer  to  trace  the  same  was  unsuccessful.  Allowance  has  to  be  made  for 
the  Secretary’s  peculiar  style  of  bookkeeping,  which  Accountant  Stevens 
reported,  as  the  Government’s  expert,  the  worst  he  had  ever  seen.  I  know 
it  to  be  the  custom  of  the  Directors,  whenever  they  charge  themselves  with 
certain  duties,  placing  the  same  in  resolution  form  in  the  minute-book,  to 
offset  such  by  a  second  resolution,  upon  discharging  the  duty;  and  there 
is  certainly  no  such  resolution  subsequent  to  the  above  one,  as  doubtless 
would  have  been  the  case  had  the  Central  been  actually  paid  the  money  cov¬ 
ered  by  the  notes.  It  was,  in  my  opinion,  systematically  charged  off  to  “  profit 
and  loss,”  or  a  portion  of  it.  I  will  show,  by  correspondence  herewith 
given,  that  the  Contract  and  Finance  Company,  at  the  time  it  dissolved,  had 
still  a  balance  undivided,  and  which  was  transferred  to  the  successor  Com¬ 
pany,  the  “  S.  H.  H.  &  C.  Co.,”  and  credited  to  “profit  and  loss  ”  account ; 
amounting  to  $2,608,292.29.  Mr.  Stanford  himself,  notwithstanding  his 
habit  of  avoiding  damaging  admissions  when  testifying,  acknowledged  to 
the  Commission  that  stock  to  the  value  of  over  $50,000,000  was  divided  as 
a  profit.  (See  evidence  of  Stanford,  vol.  5,  page  2669  ;  and  W.  E.  Brown, 
vol.  5,  page  2979.)  As  such  became  a  matter  of  record  when  transferred 
to  their  own  names,  it  would  have  been  useless  to  have  denied  it ;  large 
sums  of  money  also  went  to  them. 

One  of  the  principal  excuses  for  the  enormous  cost  of  construction, 
stated  by  the  Directors,  was  that  of  excessive  freight  rates  charged  by  ship¬ 
pers  around  Cape  Horn,  in  addition  to  the  very  high  cost  of  the  material 
purchased  in  the  East. 

Before  Mr.  Huntington  started  East  to  contract  for  the  purchase  of 
rails  and  rolling-stock  and  the  shipment  thereof,  he  entered  into  an  agree¬ 
ment  with  Mr.  Jas.  P.  Flint,  in  December,  1862,  to  pay  the  latter  $25,000 
to  accompany  him  and  use  his  influence  towards  securing  the  most  favor¬ 
able  terms  and  lowest  prices.  Mr.  Flint  was  paid  $30,000  for  the  fulfil¬ 
ment  of  his  agreement.  Mr.  Huntington  contracted  with  several  Eastern 
firms  for  the  supply  of  material,  and  on  terms  which  showed  him  to  have 
been  a  very  good  buyer  at  the  time,  securing  every  concession  possible. 
For  example,  the  following  letter,  written  by  Mr.  Huntington  himself,  to 
Secretary  Miller,  regarding  charges  on  freight,  will  explain : 

1** 


18 


CENTRAL  PACIFIC  BATLROAD. 


New  York,  March  9,  1865. 

E.  H.  Miller,  Esq.,  Sacramento. 

Dear  Sir  :  .  As  to  the  insurance  charged  by  Lambard  on  iron  per  Ellen 

Sears,  I  will  have  him  pay  it  back.  .  .  . 

Enclosed  with  this  you  should  find  five  B/L  for  goods  shipped  on  ship  Ne  Plus 
Ultra.  They  did  not  have  the  weight  or  measure  of  the  goods  on  the  B/L  for  the 
reason,  as  I  was  told  by  the  shippers,  that  as  the  price  was  so  much  lower  than  any 
other  freight  that  they  had  on  the  ship  that  they  did  not  want  to  have  the  price  appear 
on  the  manifest,  and  so  I  had  them  give  me  the  weight  and  measure  on  a  separate 
piece  of  paper,  which  I  have  pasted  on  each  B/L. 

(Signed)  C.  P.  Huntington. 

Also,  I  have  it  on  the  best  of  authority,  personal  recollections  of  gentle¬ 
men  engaged  in  railroad  material  business  in  San  Francisco  at  that  time, 
and  who  verified  their  statements  by  showing  their  books,  showing  that  the 
rate  on  that  class  of  goods  via  Cape  Horn  was  then  between  $3  and  $4  per 
ton.  A  member  of  one  of  the  houses  still  dealing  in  that  material  asserted 
positively  that  the  freight  on  iron  seldom  reached  and  never  exceeded 
$6  a  ton.  This  maximum  figure,  he  allowed,  might  have  been  charged 
occasionally  when  there  happened  to  be  a  scarcity  of  vessels  in  the  harbors 
of  Hew  York  or  Boston,  but,  as  a  rule,  ship-owners  were  glad  to  take  the 
iron  at  almost  any  rate,  in  place  of  stone  ballast,  which  otherwise  would 
have  to  be  taken,  most  of  the  cargoes  consisting  usually  of  light  material. 
Furthermore,  one  of  the  contracts  by  Mr.  Huntington  arranged  with 
Messrs.  (Hidden  &  Williams,  under  date  of  March  14,  1863,  for  the  latter 
to  attend  to  all  of  his  shipping  for  one  year  from  date,  allowing  Hunting- 
ton  the  privilege  of  obtaining  lower  rates  during  that  period,  if  possible. 
Freight  was  generally  shipped  by  sailing  vessel,  but  in  a  few  instances, 
when  there  was  an  urgent  need  for  a  locomotive  or  car,  it  would  be  sent  in 
pieces  via  the  Isthmus  of  Panama,  regardless  of  expense.  The  writer 
remembers  a  statement  which  was  gotten  up  by  one  of  the  Company’s 
officers,  showing  freight  charges  paid  by  the  Company  at  that  time,  wherein 
such  a  case  as  just  cited  was  given  as  a  basis  of  cost  for  transportation  of 
rolling-stock  to  California.  Of  course  owners  of  steamships  would  charge 
considerable  more  than  sailing  vessels,  having  had  as  much  business  as 
they  could  well  attend  to  in  transporting  passengers  en  route  to  Cali¬ 
fornia,  and  in  which  there  was  more  profit  than  in  handling  freight. 

By  the  terms  of  most  of  Mr.  Huntington’s  contracts  above  referred  to, 
the  consideration  was  principally  the  Company’s  first  mortgage  bonds  and 
also  capital  stock.  Therefore,  if  the  Company  suffered  any  disadvantages 
in  the  matter  of  prices  charged  for  material,  it  arose  from  that  cause.  Had 
the  Directors  used  cash  in  such  purchases,  instead  of  reserving  it  for  them¬ 
selves  when  retailing  the  material  to  the  road,  the  result  would  be  differ¬ 
ent.  As  it  was,  they  were  finally  obliged  to  use  money,  and  I  have  not 
the  least  doubt  but  that  they  obtained  all  the  benefits  and  considera¬ 
tions  they  could  reasonably  ask  for.  The  price  paid  by  the  Directors  for 
iron  rail,  as  shown  by  Mr.  Huntington’s  contracts,  even  when  payment 
was  made  in  bonds  and  capital  stock,  was  about  equal  to  the  cost  of 
sixty  pound  steel  rail  of  to-day;  that  is,  placing  the  same  valuation  on 
the  bonds  and  stock  as  when  issuing  such  to  C.  Crocker  &  Co.,  and 
the  Contract  and  Finance  Company,  on  account  of  construction .  As  the 
bonds  and  stock  represented  a  road  yet  to  be  constructed,  and  on  account 
of  the  rumors  which  were  spread  soon  after  its  commencement  regarding 
the  Directors’  management,  it  could  hardly  be  expected  that  merchants  in 
the  East  would  accept  its  paper  at  any  figure.  A  popular  name  given 
the  enterprise  in  those  days  was  “The  Dutch  Flat  Swindle,”  and  the 
prejudice  against  it  was  almost  universal.  The  assistance  which  the 


CENTRAL  PACIFIC  RAILROAD. 


19 


Government  gave  it  alone  carried  it  through,  for  the  Directors  were  in 
no  position  to  ask  or  even  expect  credit  elsewhere.  "Tkat^’th^  ^en'eral 
suspicion  east  at  the  time  was  well  founded,  regarding^  the.  hUegrijty5 #of ' 
these  men,  is  now  apparent,  and  the  Government  as,  at  . present  ;at,^  logs 
to  know  how  to  get  back  its  loan.  *  ;  :  -  '  ,  :  - 

The  wages  paid  to  laborers  engaged  in  the  construction  Were  less  than- 
those  paid  by  the  Company  to-day.  Chinese  workmen  Were  pref erred,  tft 
to  white  men  and  the  Directors  have  since  stated  that  pruy ed  * 

to  be  well  fitted  for  the  work,  and  that  it  was  partly  due  to  their  industry 
that  the  work  progressed  so  rapidly.  The  Construction  Companies  adver¬ 
tised  for  their  help,  and  a  copy  of  such  advertisement  will  explain  it¬ 
self  : 

Central  Pacific  Railroad.  10,000  more  Chinese  laborers  wanted  to  work  on  the 
Central  Pacific  Railroad.  Thirty-one  dollars  per  month,  of  twenty. six  working  days, 
will  be  paid  in  gold  coin  to  each  man.  The  wages  will  be  paid  promptly  every  month. 
Parties  of  twenty  or  more  going  to  work  will  be  carried  over  the  railroad  from  Sacra¬ 
mento  to  the  end  of  the  road  free. 

Charles  Crocker  &  Co. 

Sacramento,  January  7,  1867. 

According  to  the  reports  of  the  Chief  Engineer,  heretofore  shown,  on 
the  probable  cost  of  constructing  the  heaviest  part  of  the  road,  the  Major¬ 
ity  Commission  allowed  the  Directors  a  very  liberal  margin  when  they 
came  to  the  following  conclusions  on  the  subject: 

In  estimating,  therefore,  the  actual  cost  of  construction  of  the  Central  Pacific  Rail¬ 
road,  of  any  branches  which  were  constructed  through  contracts  with  the  Contract  and 
Finance  Company,  of  any  repairs  done  by  that  Company,  or  supplies  furnished  by  it, 
we  feel  compelled  to  accept  the  rule  of  law  which  applies  to  all  cases  of  suppressed 
evidence,  and  which  raises  against  the  party  implicated  in  the  suppression  the  very 
strongest  presumption  that  the  suppressed  evidence,  if  produced,  would  testify  against 
the  party  suppressing  the  same. 

It  is  our  judgment  that  the  actual  cost  of  construction  of  the  Central  Pacific  Rail¬ 
road  from  Sacramento  to  Promontory  Point,  and  the  purchase  from  the  Union  Pacific 
Railroad  Company  of  forty-seven  and  one-half  miles,  a  total  distance  of  737.50  miles, 
did  not  exceed  the  sum  of  $36,000,000. 

We  base  this  conclusion  on  the  examination  of  many  witnesses  as  to  the  actual 
cost  of  railroad  building  and  material  during  the  years  of  construction,  on  the  evidence 
taken  of  the  character  of  the  country,  on  the  agreed  price  paid  by  the  Central  Pacific 
to  the  Union  Pacific  for  forty-seven  and  one-half  miles  of  the  road  between  Promon¬ 
tory  Point  and  a  point  five  miles  west  of  Ogden ;  and  in  reaching  this  conclusion,  we 
have  made,  in  our  judgment,  full  allowance  for  all  that  appears  in  the  evidence  re¬ 
lating  to  the  peculiar  and  difficult  character  of  the  work,  to  the  excessive  cost  of  build¬ 
ing  the  road  over  the  Sierra  Nevadas,  to  the  impediments  offered  by  snow  and  stormy 
weather,  to  the  unusual  item  of  cost  arising  out  of  the  construction  of  snow-sheds,  and 
to  the  increased  cost  resulting  from  the  rapidity  with  which  the  work  was  carried  on 
and  the  necessity  of  expensive  and  unusual  transportation  of  all  material  required  for 
the  construction  of  the  read. 

As  this  investigation  is  not  in  the  nature  of  an  accounting,  it  seems  unnecessary  to 
detail  the  facts  and  the  figures.  Mr.  Stanford’s  admission  is  that  the  $54,000,000  of 
stock  distributed  by  the  Contract  and  Finance  Company  was  substantially  a  net  profit, 
subject  only  to  the  liquidation  of  an  indebtedness  of  the  Contract  and  Finance  Company 
not  exceeding  $3,000,000.  (See  evidence  Stanford,  vol.  5,  p.  2669;  William  E.  Brown, 
vol.  5,  p.  2979.)  Report  Majority  Committee,  pp.  74-5. 

When  the  Company  incorporated  its  capital  stock  was  fixed  at  $8,500,- 
000.  In  October,  1864,  it  was  increased  to  $20,000,000,  and  again  in  July, 
1868,  to  $100,000,000.  The  reason  assigned  for  the  last  named  increase 
being  u  to  complete  the  line  to  connect  with  the  Union  Pacific.”  Up  to  this 
time — 1868 — Leland  Stanford  had  but  680  shares  of  stoqk  standing  in  his 
name  and  which  he  voted  in  favor  of  the  increase ;  C.  P.  Huntington  had 
and  voted  565  shares;  while  C.  Crocker  cast  39,475  shares,  and  the  Con- 


20 


CENTRAL  PACIFIC  RAILROAD. 


tract  and  Fiippice  Company,  by  C.  Crocker  proxy,  voted  102,100  shares 
for,  the.resointibn.  The  total  number  of  shares  voted  at  the  meeting  for 
.the  increase  of  stock  to  $100,000,000  was  151,520  shares,  of  which  it  will 
be  s^on  \Over  1 41, 5Q0  shares  were  controlled  by  C.  Crocker  and  the  Con- 
stir  action  Company.  The  real  object  of  the  increase  was  to  issue  it  to  the 
Directors  on  account  of  construction.  Their  holdings,  it  may  be  said 
>hei\efQijSy Icpsjf  them  nothing,  while  to  many  of  the  other  stockholders  and 
subscribers  to  the  road  this  second  increase  was  a  severe  blow.  They  had 
paid  $100  cash  per  share  for  their  stock,  yet  by  such  additional  stock  which 
Stanford  &  Co.  received,  their  loss  was  now  complete.  They  had  actually 
risked  their  private  means, — some  of  them  their  all, — but  their  assistance, 
given  at  a  time  when  most  needed,  was  no  longer  required,  since  the  Gov¬ 
ernment’s  loan  had  placed  millions  of  dollars  at  the  disposal  of  the  Direct¬ 
ors.  The  investment  by  these  people  of  small  means,  which  at  one  time 
seemed  to  promise  so  well,  came  to  nothing.  Shortly  after  the  connection 
with  the  Union  Pacific  had  been  effected,  the  Directors  decided  upon  a 
general  “house  cleaning,”  consolidated  the  Central  Pacific  of  California, 
with  other  lines,  which  they  had  already  purchased  with  the  profits  from  the 
former,  and  named  it  the  “  Central  Pacific  Railroad  Company.”  They 
issued  new  certificates  of  stock  and  succeeded  in  inducing  many  (of  the 
stockholders)  to  exchange  their  original  stock  share  for  share  for  that  of 
the  new,  which  of  course  had  little  or  no  value,  while  the  stock  of  the  Central 
Pacific  of  California,  remaining  outstanding,  represented  an  important 
claim  against  Stanford  &  Co.,  arising  from  their  crooked  management. 
With  the  hope  of  securing  all  of  the  old  stock,  the  payment  of  dividends 
shortly  to  be  declared  (on  the  new  stock)  was  withheld  from  those  refusing 
to  exchange.  This  caused  others  to  part  with  the  stock  to  obtain  what 
little  was  coming  to  them.  The  few  shares  still  outstanding  consequently 
possess  great  value,  to  be  determined  only  by  a  suit  for  an  accounting. 

The  first  official  notice  of  the  charges  made  against  them,  which  the 
Directors  took,  was  a  resolution  inserted  at  the  stockholders’  meeting  in 
August,  1871,  as  follows  : 

Resolved,  That  the  management  of  the  Directors  and  officers  of  this  Company, from 
its  incorporation  to  the  present  time,  has  been  in  all  respects  satisfactory  to  us,  the 
stockholders  of  said  Company,  and  that  we  hereby  fully  approve  and  endorse  the 
same. 

The  names  of  the  “  stockholders  ”  voting  are  not  displayed  with  the 
resolution,  and  it  is  needless  to  state  who  they  were. 

A  suit  was  finally  brought  against  the  Directors,  in  the  names  of  Sam¬ 
uel  Brannan  and  others,  and  the  County  of  Placer,  California,  which  occa¬ 
sioned  a  series  of  resolutions  by  the  Directors,  denying  the  charges,  and 
they  were  also  given  a  place  in  the  stockholders’  minutes.  Out  of  the 
625,640  shares  voted,  nearly  all  was  controlled  by  the  accused  parties.  The 
resolutions  were  then  printed  in  the  Company’s  annual  report  to  the  stock¬ 
holders  for  1873,  with  a  view  of  restoring  quiet  among  them.  So  general 
was  their  denial  of  any  wrongdoing,  that  I  will  give  the  resolutions  as  pub¬ 
lished,  and  will  then  quote  the  opinion  of  the  Majority  Commission,  in 
order  that  the  reader  may  draw  his  own  conclusions  therefrom.  The  suit 
was  compromised,  of  course,  thus  saving  the  Directors  from  exposure. 

Whereas ,  Much  lias  been  said  in  the  public  press,  upon  the  stump,  in  the  legisla¬ 
tive  halls,  and  other  places,  in  relation  to  the  course  of  the  President  and  Directors  of 
this  Company,  in  the  construction  and  operation  of  its  road,  in  which  the  plan  adopted 
by  them  to  secure  a  speedy  completion  thereof  has  been  denounced  as  unjust  and 
fraudulent  towards  the  Government  of  the  United  States  and  the  stockholders  of  the 
Company ;  and 


CENTRAL  PACIFIC  RAILROAD. 


21 


Whereas ,  Suits  in  equity  have  been  brought  by  Samuel  Brannan  and  the  County  of 
Placer,  which  suits  are  now  pending  in  the  courts  of  the  State  of  California,  on  behalf 
of  themselves  and  such  other  stockholders  as  may  desire  to  unite  with  them,  against 
the  President  and  Board  of  Directors  of  this  Company, charging  them  with  an  abuse  of 
their  powers  in  the  making  of  alleged  fraudulent  contracts  with  Charles  Crocker  &  Co., 
and  the  Contract  and  Finance  Company,  for  the  construction  of  the  road  of  the  Com¬ 
pany,  whereby,  as  alleged, the  funds  and  means  of  the  Company  have  been  misapplied  and 
wasted,  to  the  prejudice  of  the  Government  of  the  United  States  and  the  stockholders 
of  the  Company,  and  asking  that  the  President  and  Directors  maybe  required  to  render 
an  account  of  their  doings  in  and  about  the  construction  of  said  road,  and  to  account 
for  and  pay  over  to  the  Company  all  moneys  so  as  aforesaid  misapplied  and  wasted  ; 
and 

Whereas ,  In  view  of  the  matters  aforesaid,  we  have  considered  it  incumbent  upon 
us,  for  our  own  security  and  'the  security  of  all  others  having  any  claims  upon  or 
against  the  Company,  to  inquire  into  these  alleged  abuses  ;  and 

Whereas .  We  have  investigated  and  now  fully  know  and  understand  all  the  trans¬ 
actions  of  the  President  and  Directors  of  the  Company  in  and  about  the  construction 
of  said  road,  and  the  general  management  of  the  affairs  of  the  Company,  and  are  fully 
satisfied  therewith  ;  and 

Whereas ,  It  is  just  to  them  that  our  opinion  of  their  administration  of  the  affairs  of 
the  Company  should  be  formally  and  publicly  expressed  ;  now,  therefore, 

Resolved,  That  we  do  hereby,  with  full  knowledge  of  the  matters  hereinbefore 
referred  to,  approve  and  endorse  the  plan,  measures,  and  contracts  adopted  and  made 
by  our  President  and  Directors  in  relation  to  the  construction  of  said  road  as  affording, 
in  our  judgment,  the  only  practicable  and  available  mode,  under  the  embarrassing  and 
trying  circumstances  in  which  they  were  placed,  and  as  being  more  expeditious  and 
equally  as  economical  as  any  other  course  that  could  have  been  adopted. 

Resolved ,  further,  That  we  approve  the  action  of  the  President  and  Directors  in 
guaranteeing  the  payment  of  sixteen  hundred  of  the  twenty-year  six  per  cent,  mort¬ 
gage  bonds  for  $1,000  each,  of  the  California  Pacific  Railroad  Company,  as  being 
highly  advantageous  to  the  financial  interests  of  the  Company. 

Resolved,  further,  That  we  wholly  condemn  and  disapprove  the  course  pursued  by 
Samuel  Brannan  and  the  County  of  Placer  in  instituting  the  suits  hereinbefore 
referred  to. 

The  following  is  taken  from  the  report  of  the  Majority  Commission, 
pages  73  and  74.  It  is  impartial,  and  it  is  substantially  so  well  supported 
by  facts  that  it  deserves  to  be  noticed. 

(1.)  In  1870  suits  were  brought  or  threatened  by  Charles  A.  Lambard,  Samuel 
Brannan,  and  others,  against  Stanford,  Huntington,  Hopkins,  and  Crocker,  as  owners 
of  stock  of  the  Central  Pacific  Railroad  Company,  alleging  that  those  persons  had 
been  guilty  of  many  violations  of  their  duties  as  Directors,  and  that  they  had  voted 
profitable  contracts  to  themselves  ;  th^it  by  means  of  these  contracts  they  had  procured 
possession  of  substantially  all  of  the  assets  of  the  Company  remaining  after  the 
expenditure  of  the  actual  cost  of  construction.  The  Commission  do  not  mean  to  inti¬ 
mate  that  all  of  the  charges  contained  in  these  complaints  are  sustained  by  the  evi¬ 
dence;  but  it  does  appear  that  the  four  persons  named  did  vote  contracts  to  them¬ 
selves,  under  which  large  profits  were  made  and  divided.  The  allegations  contained 
in  these  complaints  were  such  as  would  compel  men  of  honor,  if  these  allegations 
were  false,  to  defend  themselves  at  any  cost.  It  appears  from  the  evidence  that  all 
these  suits  were  settled,  and  that  the  stock  owned  by  the  plaintiffs  were  bought  at 
rates  varying  from  $400  a  share  to  $1,000  a  share.  (See  evidence  of  Stanford,  vol.  5, 
p.  2641;  vol.  6,  pp.  2775,  2779.) 

The  evidence  on  which  the  successful  prosecution  of  such  suits  would  necessarily 
depend  was  contained  in  the  books  of  Crocker  &  Co.  and  of  the  Contract  and  Finance 
Company,  because  the  actual  cost  of  construction  to  these  Companies,  compared  with 
the  actual  payments  made  by  the  Central  Pacific  Railroad  Company,  would  disclose 
the  profits  divided  between  Stanford,  Huntington,  Hopkins,  and  Crocker.  They,  and 
they  alone,  were  interested  in  the  suppression  of  this  evidence. 

(2.)  In  1873  the  disclosures  made  by  the  examinations  conducted  by  the  Wilson 
Committee  excited  much  public  attention  and  indignation  with  reference  to  similar 
practices  affecting  the  Union  Pacific  Railroad  Company,  through  the  intervention  of 
the  Credit  Mobilier.  Comparatively  little  attention  was  given  by  that  Committee  to 
the  affairs  of  the  Central  Pacific  Railroad  Company.  Mr.  Huntington,  however,  was 
examined  as  a  witness.  He  was  examined  as  to  the  profits  resulting  from  the  con¬ 
struction  of  the  Central  Pacific  Road.  He  described  them  as  being  confined  to  the 


22 


CENTRAL  PACIFIC  RAILROAD. 


stock  of  the  Company,  and  that  the  share  received  by  him  amounted  to  $1,000,000  of 
this  stock.  (See  report  of  the  Wilson  Committee,  evidence  of  Huntington,  p.  703.) 
This  evidence  was  given  more  than  two  years  after  the  completion  of  the  Central 
Pacific  Railroad,  and  Mr.  Stanford  has  testified  that  each  of  these  parties  in  interest 
received  $13,000,000  of  the  stock  of  the  Company  as  his  share  of  the  profits.  (See  evi¬ 
dence  of  Stanford,  vol.  5,  pp.'2655  and  2656.) 

Mr.  Huntington  must,  therefore,  have  known,  when  he  was  testifying  before  the 
Wilson  Committee,  that  his  statement  was  not  a  true  one. 

The  report  made  by  the  Wilson  Committee  concerning  the  Central  Pacific  Rail¬ 
road  was  that  they  were  unable  to  obtain  the  facts  and  figures  they  desired,  because 
the  persons  and  books  to  be  examined  were  in  California,  and  they  had  not  at  their 
command  the  time  necessary  for  reaching  them.  The  recommendations  of  this  Com¬ 
mittee  in  regard  to  the  Union  Pacific,  which  afterwards  was  enacted  into  the  Act  of 
March  3,  1873,  directed  the  Attorney-General  to  prosecute  the  offending  officers  of  the 
Union  Pacific  Railroad  Company.  This  circumstance,  and  the  danger  that  similar  dis¬ 
closures  would  lead  to  a  similar  result  as  to  the  officers  of  the  Central  Pacific,  formed 
another  strong  inducement  for  the  suppression  of  the  books  of  Charles  Crocker  &  Co., 
and  of  the  Contract  and  Finance  Company. 

(3.)  The  books  in  question  are  identified  by  John  Miller,  William  E.  Brown,  Daniel 
Z.  Yost,  and  others  as  large  journals  and  ledgers  containing  several  hundred  pages 
each,  numbering,  in  .all,  from  twelve  to  fifteen  volumes,  and  their  disappearance  by 
accident  or  inadvertence  is  simply  impossible.  Mr.  Yost  testifies  that  the  last  he  saw 
of  them  Hopkins  was  personally  engaged  in  packing  them  in  boxes.  (See  evidence  of 
Yost,  vol.  5,  p.  2712.) 

These  books  had  been  kept  for  several  years  by  William  E.  Brown.  He  was  suc¬ 
ceeded  in  1873  by  John  Miller,  who  acted  as  Secretary  and  bookkeeper  of  the  Contract 
and  Finance  Company,  after  Mr.  Brown  ceased  to  act  in  1873.  Both  Mr.  Brown  and 
Mr.  Miller  testified  that  before  Miller  took  charge  of  the  books,  William  E.  Brown 
prepared  a  complete  and  new  set,  consisting  of  day  book,  journal,  and  ledger,  into 
which  set  of  books  he  personally  transcribed  all  the  balances  of  the  unclosed 
accounts  contained  in  the  books  of  the  Contract  and  Finance  Company.  These  books 
have  since  been  produced  before  the  Commission,  and  the  fact  is  as  stated. 

John  Miller  testified  that  he  saw  the  books,  both  of  the  Contract  and  Finance  Com¬ 
pany  and  of  Charles  Crocker  &  Co.,  in  their  usual  place  in  the  rooms  occupied  by  the 
Contract  and  Finance  Company  ;  that  he  was  personally  in  charge  of  the  room  during 
the  day  on  which  they  disappeared;  that  he  left  the  room  for  a  short  time,  at  the 
lunch  hour,  leaving  Mr.  Brown  there,  and  that  on  his  return  the  books  had  disap¬ 
peared.  (See  evidence  of  John  Miller,  vol.  5,  p.  2879.)  William  E.  Brown  denies  any 
knowledge  of  their  whereabouts,  or  of  the  circumstances  of  their  disappearance. 
(See  vol.  5,  p.  2990.)  Mr.  Crocker  gives  it  as  his  opinion  that  the  books  were  destroyed 
by  Mark  Hopkins,  as  having  no  value.  (See  evidence  of  Crocker,  vol.  7,  p.  3665.) 

Putting  all  these  facts  together, — the  existence  of  a  strong  motive  on  the  part  of 
Stanford,  Huntington,  Hopkins,  and  Crocker  to  suppress  the  books ;  the  impossibility 
of  accounting  for  their  disappearance  except  in  pursuance  of  the  act  or  direction  of 
one  of  these  four  persons;  the  evidence  of  Yost  that  he  saw  Hopkins  engaged  in 
packing  the  books  in  boxes;  the  evidence  of  John  Miller  of  their  sudden  disappear¬ 
ance,  and  the  statement  of  Mr.  Crocker  connecting  their  disappearance  with  Mark 
Hopkins, — it  is  impossible  to  avoid  the  conclusion  that  the  suppression  of  these  books 
has  been  intentional  and  willful. 

After  reading  the  evidence  of  the  Commission,  regarding  the  suppression 
of  the  important  books,  it  requires  but  a  spark  of  intelligence  to  reach  a 
conclusion  as  to  the  guilt  of  the  four  Directors, — their  attempt  at  self¬ 
acquittal  by  publishing  the  foregoing  resolutions  notwithstanding. 

Before  passing  to  subjects  of  the  more  recent  mismanagement  by  Stan¬ 
ford  &  Co.,  I  wish  to  satisfy  the  reader  beyond  a  doubt  as  to  the  habit  of 
these  men,  when  occasion  requires,  of  inserting  resolutions  of  their  own  in 
the  minutes  of  stockholders,  and  purporting  to  have  come  from  them — the 
general  stockholders;  whereas  they  take  no  part  in  them  whatever, — as 
in  the  case  of  the  Brannan  suit  resolutions  heretofore  shown. 

At  the  stockholders’  meeting  of  July  11,  1876,  the  Directors  again  put 
a  set  of  resolutions  in  the  minutes  (this  time  made  necessary  by  another 
suit  brought  against  them,  called  the  Robinson  suit),  in  which  they 
denounced  the  stockholders  as  blackmailers,  etc.,  and  exonerated  them- 


CENTRAL  PACIFIC  RAILROAD. 


23 


selves  in  the  former  manner ;  this  suit  was  also  likewise  compromised. 
The  total  number  of  shares  voted  was  539,601.  On  this  occasion  the 
Directors  put  large  blocks  of  their  stock  in  the  names  of  employes  of  the 
Company,  and  which  they  voted  for  the  resolutions.  On  the  minute-book 
these  names  appear  as  the  stockholders  and  are  scattered  through  the 
bona-fide  names  ;  so  that  it  is  impossible  for  any  one  to  discover  the  impo¬ 
sition  unless  these  parties  were  known  to  him.  Following  I  give  some  of 
the  heaviest  of  such  voters  ;  excepting  the  Directors  shown,  nearly  all  of 
the  others  are  personally  known  to  me  as  employes  who  never  at  any  time 
owned  stock  in  the  Company,  as  the  books  will  show  : 

Leland  Stanford,  43,848  ;  D.  D.  Colton,  20,024 ;  A.  N.  Towne,  6,197;  John  Corning, 
7,000  ;  C.  H.  Cummings,  10,829  ;  Jerome  Madden,  6,500  ;  A.  D.  W.  McCullough,  5,000  ; 
C.  J.  Torbert,  1,500  ;  E.  S.  Miller,  7,000;  S.  T.  Gage,  4,500  ;  Robert  Robinson,  10,010  ; 
Charles  Crocker,  94,394 ;  E.  B.  Crocker  (C.  Crocker  trustee),  103,851 ;  E.  H.  Pardee, 
1,255  ;  J.  T.  Tracy,  84,312  ;  I.  E.  Gates,  300  ;  R.  J.  Phillips,  1,200  ;  Mark  Hopkins,  53,- 
106  ;  Benj.  Welch,  1,000  ;  D.  T.  Phillips,  3,686  ;  E.  W.  Hopkins,  2,500;  W.  E.  Brown, 
1,721 ;  Moses  Hopkins,  2,500;  W.  R.  S.  Foye,  4,514  ;  A.  R.  Preece,  5,000  ;  J.  R.  Watson, 
1,500  ;  C.  P.  Huntington,  9,606  ;  Albert  Gallatin,  4,505. 

It  cost  the  Central  Pacific  a  round  amount  to  compromise  this  suit,  as 
besides  purchasing  the  stock  represented,  the  attorney  for  the  stockholders, 
the  late  Mr.  Cohen,  who  persuaded  them  to  accept  the  terms  of  settle¬ 
ment,  was  taken  into  the  Company’s  employ  on  a  large  salary ;  while  sev¬ 
eral  law  firms  assisting  in  the  prosecution  also  had  to  be  satisfied  at  heavy 
expense  ;  some  were  permanently  engaged  by  the  Company. 

The  charter  of  the  Southern  Pacific  Company  of  Kentucky  was  obtained 
by  the  aid  of  a  special  Act  of  the  Legislature  of  that  Commonwealth  in 
1884.  The  Directors  have  never  had  any  interest  or  property  of  any  kind 
within  that  State,  so  that  their  object  in  incorporating  under  its  laws  can 
be  attributed  to  the  purpose  of  preventing  the  Government  and  stock¬ 
holders  from  inquiring  into  the  future  management  of  the  Central  Pacific 
and  other  roads,  by  leasing  them  to  their  private  Company.  Although  the 
Company  was  formed  for  the  purpose,  the  Directors  leased  the  Central  to 
it  without  the  knowledge  or  consent  of  the  stockholders;  the  Government, 
too,  notwithstanding  its  large  interest  therein,  was  completely  ignored.  As 
is  known  to  everybody,  Stanford  &  Co.  had  vainly  endeavored  in  the  past 
to  prevent  the  interference  of  Congress  in  their  management  of  the  Central, 
on  the  strength  of  its  having  obtained  its  charter  from  the  State  of  Cal¬ 
ifornia.  They  well  knew  that  the  stockholders  would  not  consent  to  the 
leasing  of  their  roadjfco  such  a  Company,  so  they  carried  out  their  purpose 
under  cover. 

William  E.  Brown,  who  figured  so  prominently  in  Contract  and  Finance 
Company  affairs,  was  appointed  by  Stanford  &  Co.  as  President  of  the 
Southern  Pacific  Company,  and  H.  C.  Nash,  private  secretary  to  Mr.  Stan¬ 
ford,  as  its  Secretary.  Shortly  thereafter  an  agreement  was  secretly  drawn 
up,  couched  in  terms  best  calculated  to  deceive  and  quiet  the  non-consulted 
stockholder,  and  it  was  then  entered  into  by  the  Directors  at  an  ordinary 
Board  meeting  on  January  14,  1885.  It  was  signed  by  the  above-named 
“officials”  on  behalf  of  the  Southern  Pacific  Company,  and  by  Mr.  Stan¬ 
ford,  as  President  of  the  Central  Pacific,  and  E.  H.  Miller,  Jr.,  the  Sec¬ 
retary,  thus  placing  the  latter  Company  under  private  management  for 
ninety-nine  years. 

Immediately  after  the  execution  of  the  lease,  the  two  dummies  of  the 
Southern  Pacific  Company  resigned,  and  Stanford  and  Miller  were  elected 
to  the  respective  offices  of  President  and  Secretary,  continuing  to  serve  the 


24 


CENTRAL  PACIFIC  RAILROAD. 


Central  in  the  same  capacities.  How  little  the  Directors  cared  for  the  rights 
of  either  the  stockholders  or  the  Government  may  be  seen  from  the  fact 
that  they  allowed  over  three  years  to  elapse  before  acquainting  the  outside 
stockholders  with  the  conditions  of  the  lease,  it  having  been  first  published 
in  the  annual  report  for  the  year  ending  December  31,  1887,  issued  in  the 
spring  of  the  following  year.  As  it  is  entirely  an  agreement  by  the  Di¬ 
rectors,  it  is  not  worth  publishing  in  full  herewith,  nor  is  it  entitled  to  the 
serious  consideration  which  it  would  otherwise  receive.  I  will  therefore 
allude  to  one  or  two  clauses  in  order  to  show  how  deceptive  and  mislead¬ 
ing  it  is.  The  following  is  assigned  as  the  reason  for  the  lease  : 

That  whereas,  part  of  tlie  through  business  heretofore  done  by  the  Central  Pacific 
Railroad  Company’s  line  from  Ogden  to  the  waters  of  the  Pacific  has  been  diverted  by 
the  Northern  Pacific,  Atlantic  and  Pacific,  and  Atchison,  Topeka  and  Santa  Fe  rail¬ 
roads  ;  and 

Whereas ,  The  Union  Pacific  Railroad  Company  has  secured  the  control  of  the  road 
known  as  the  Oregon  Short  Line,  and  thereby  secured  an  outlet  to  the  Pacific  other 
than  over  the  Central  Pacific;  and 

Whereas,  It  now  appears  that  the  through  business  hitherto  done  by  the  Central 
Pacific  Railroad  will  thereby  be  further  diverted,  and  that  it  is  not  only  to  the  best 
interest  of,  but  absolutely  necessary  that  the  Central  Pacific  Railroad  Company,  in 
order  to  maintain  itself  against  these  diversions,  should  be  operated  in  connection  with 
a  friendly  through  line  to  the  waters  of  the  Atlantic  ;  and 

Whereas,  The  said  Southern  Pacific  Company  has  a  line  of  railroad  under  its  control 
for  a  period  of  ninety-nine  years,  extending  continuously  from  the  Pacific  Ocean  to 
the  Atlantic  Ocean  ;  and 

Whereas,  The  lines  of  each  Company  are  doing  a  large  local  traffic,  and  it  is  impor¬ 
tant  to  both  that  the  same  should  be  conducted  in  harmony  ;  .  .  . 

The  “friendly  through  line”  referred  to,  although  owned  and  con¬ 
ducted  by  Stanford  &  Co.  for  some  time  past,  had  just  been  leased  to  the 
Southern  Pacific  Company  a  month  previous  to  the  leasing  of  the  Central, 
the  latter’s  commencing  from  April  1,  1885,  while  all  of  the  other  roads’ 
lease  being  dated  March  1.  Therefore,  the  excuse  of  operating  the  Cen¬ 
tral  with  a  friendly  through  line  is  simply  bosh. 

The  other  clause  to  which  I  wish  to  direct  attention  is  : 

The  said  Southern  Pacific  Company  agrees  to  and  with  the  said  Central  Pacific 
Railroad  Company  that  it  will  maintain  and  keep  the  property  hereby  leased  in  good 
order,  condition,  and  repair  ;  operate,  maintain,  add  to,  and  better  the  same  at  its  own 
expense ;  pay  all  taxes  legally  assessed  against  or  levied  thereon,  and  will  at  the  ter¬ 
mination  of  this  lease  return  the  same  to  the  said  Central  Pacific  Railroad  Company  or 
to  its  successors  or  assigns  (with  additions  and  betterments),  in  as  good  condition  and 
repair  as  the  same  was  at  the  date  hereof. 

If  the  Government  imagines  that  this  condition  in  the  lease  is  being 
fulfilled,  or  that  the  Central  will  receive  even  its  own  property  back,  it  is 
badly  deceived.  Any  one  who  has  passed  over  the  various  lines  under  lease 
will  notice  improvements  going  on  everywhere  excepting  on  the  lines  of 
the  Central,  and  this  simply  because  the  Directors  anticipate  that  Congress 
will  take  the  road,  or  what  is  left,  in  lieu  of  the  debt.  Furthermore,  let 
not  the  stockholder  imagine  that  the  construction  which  the  Directors  put 
upon  the  above  paragraph  is  in  the  least  advantageous  to  their  road.  In 
other  words,  Stanford  &  Co.  attend  to  the  betterments  and  additions  either 
through  the  Southern  Pacific  Company  or  the  Pacific  Improvement  Com¬ 
pany,  and  various  items  of  expense  are  improperly  included  in  the  account 
known  as  “Betterments  and  Additions.”  These,  with  any  valuation 
which  Stanford  &  Co.  place  upon  them,  are  charged  up  against  the  Central. 
In  fact,  the  heavier  the  road’s  expenses  are  shown  to  be,  the  more  apt  are 
the  stockholders  to  remain  contented  under  lease  and  receive  the  charitable 
donation  from  its  lessee  as  guaranteed  rental.  The  fact  seems  to  be  lost 


CENTRAL  PACIFIC  RAILROAD. 


25 


.sight  of,  that  under  favorable  management  the  Central  could  not  only  earn 
this  rental  guaranteed  by  the  Southern  Pacific  Company,  but  a  great  deal 
more  ;  and  the  mere  fact  that  Stanford  &  Co.  agree  to  make  good  any  deficit 
there  may  be,  is  proof  in  itself  that  they  receive  the  profit  through  another 
channel,  and  at  the  expense  of  the  Central.  Let  us  glance  at  the  notice 
which  the  Directors  give  to  the  stockholders  in  the  annual  report  for  1888: 

The  net  profit  was  less  than  the  guaranteed  rental  by  the  amount  in  1887,  of  $113,- 
266.69,  and  in  1888,  of  $397,170.16.  The  Southern  Pacific  Company  has  thus  been  re¬ 
quired  to  make  up  in  these  two  years  a  deficit  of  $510,436.85.  The  chief  cause  of  the 
deficit  shown  for  1888  was  the  large  expenditures  made  for  betterments  and  addi¬ 
tions.  .  .  . 

Whatever  figure,  therefore,  the  Directors  succeed  in  reducing  the  net 
earnings  to,  below  the  guaranteed  income,  either  by  charges  to  “  Better¬ 
ments  and  Additions,”  diverting  traffic,  or  otherwise,  it  seemingly  places 
the  stockholder  under  obligations  to  the  Southern  Pacific  Company  to  that 
amount;  and  the  net  earnings  will  continue  to  show  a  falling  off,  pending 
the  arrangement  by  Congress  for  the  future  payment  of  the  debt. 

The  second  transcontinental  line  also  under  lease  was  unquestionably 
built  and  acquired  through  the  profits  of  the  Central  Pacific,  and  both 
have  a  common  entrance  into  San  Francisco,  while  the  branch  lines  or 
feeders  in  California,  which  used  to  supply  the  Central  with  business  ex¬ 
clusively,  now  contribute  to  both  lines.  Does  any  one  suppose  that  the 
latter  road,  heavily  burdened  with  the  Government’s  claim,  and  required  by 
the  Thurman  Act  to  pay  over  to  the  Government  a  percentage  of  its  earn¬ 
ings,  is  given  anything  like  the  proportion  of  traffic  it  would  otherwise 
receive  under  proper  management  ?  This  is  best  answered  by  pointing  to 
the  increase  of  the  debt,  which  the  above  Act  was  expected  to  wipe  out 
entirely.  The  bill  was  passed  in  1878,  and  the  earnings  at  the  time  war¬ 
ranted  Congress  in  assuming  that  a  fixed  annual  percentage  thereof  would 
amply  provide  for  the  payment  of  the  debt  at  maturity.  Soon  thereafter 
the  Directors  began  to  divert  the  business  to  its  own  line,  and  the  Union 
Pacific,  unable  to  stand  the  large  falling  off  in  the  traffic  heretofore  han¬ 
dled  by  the  Central,  retaliated  by  constructing  what  is  called  the  Oregon 
Short  Line.  The  effect  of  both  these  deals  on  the  Central  Pacific  is  not 
necessary  to  point  out. 

When,  in  1878,  it  became  apparent  that  the  Government  meant  to 
secure  the  payment  of  the  debt  when  due,  the  Directors  offered  to  make 
its  own  provisions  therefor.  Congress  might  have  known  that  these  men 
would  defeat  any  plans  it  would  make  upon  its  refusal  to  leave  the  matter 
to  them  and  should  have  appointed  a  representative  in  the  Central  Pacific 
Board,  instead  of  trusting  to  them.  In  the  annual  report  for  1888,  page 
107,  Mr.  Stanford  says: 

The  provision  for  the  payment  of  the  debt  to  the  United  States  has,  by  the  Tlmrman 
Act,  been  tqken  from  the  Company’s  hands  and  assumed  by  the  Government.  This 
has  been  clearly  set  before  Congress,  and  the  recent  consideration  by  that  body  of  a 
final  adjustment  of  the  debt  indicates  that  it  recognizes  the  importance  of  an  early 
settlement.  The  longer  the  delay  in  this  matter,  the  longer  are  the  current  payments 
kept  below  an  adequate  amount.  As  the  Government  owes  the  present  condition  of  this 
debt  to  the  evil  results  of  its  own  management  of  the  matter,  and  as  an  early  settlement 
cannot  be  enforced,  but  must  be  in  the  nature  of  a  compromise,  it  is  believed  that  a 
measure  will  be  adopted  which  will  at  once  recognize  the  rights  of  the  Company  and  pro¬ 
vide  for  a  payment  not  beyond  the  earning  capacity  of  the  aided  road.  Owing  to  the 
continued  aggressiveness  of  other  lines,  and  the  reduction  of  rates,  it  would  not,  in 
the  opinion  of  your  Directors,  be  prudent  to  accept  any  proposition  requiring  a  larger 
annual  payment  than  $1,000,000. 

The  evident  object  of  Mr.  Stanford  is  to  draw  the  attention  of  both 


26 


CENTBAL  PACIFIC  RAILEOAD. 


stockholder  and  Government  from  the  real  issue,  and  the  one  he  most  fears 
— of  collecting  the  debt  when  due.  To  one,  he  declares  his  unwillingness 
to  pay  a  larger  amount  than  $1,000,000,  thus  preparing  the  stockholder 
for  a  possible  extension  to  fifty  years  of  a  debt  which  himself  and  asso¬ 
ciates  inflicted.  To  the  other,  he  assumes  a  different  front  and  keeps 
alluding  to  his  so-called  €t  equities,”  which  the  Investigation  Commission 
state  do  not  exist,  but  claim  that  the  Government  received  no  benefit  result¬ 
ing  from  the  construction  of  the  road,  at  the  expense  of  the  Directors. 
This  seems  to  be  the  verdict  of  all  who  are  familiar  with  the  past  situation ; 
so  that  Mr.  Stanford  merely  wastes  time  when  assuming  that  the  Govern¬ 
ment  will  act  upon  either  course.  To  insist  on  the  payment  of  the  debt 
when  due  would  demonstrate  the  real  value  of  the  road  to  the  Directors, 
and  doubtless  a  .method  would  be  found  to  comply  with  the  demand. 
When  the  causes  which  led  to  the  failure  of  the  Thurman  Bill  are  con¬ 
sidered,  Mr.  Stanford  should  be  the  last  man  to  ask  the  present  and 
future  stockholders  to  fulfill  his  promise  to  the  Government,  or  to 
dictate  to  the  Government  the  terms  of  settlement.  Both  propositions  are 
as  unreasonable  as  was  his  attempt  to  collect  a  bill  amounting  to  about 
$100,000  against  the  United  States, — representing  the  total  expenses 
alleged  to  have  been  incurred  by  the  visit  of  the  Investigation  Committee  to 
San  Francisco.  The  bill  was  gotten  up  in  the  Secretary’s  office  when  it 
was  learned  that  the  Commission  reported  unfavorably,  and  included 
charges  for  everything  imaginable, — not  even  excepting  a  high  valuation 
of  the  services  of  the  Company’s  officers,  for  time  spent  in  the  company  of 
the  Commission.  It  caused  much  merriment  among  those  having  it  in 
charge,  and  altogether  was  regarded  as  a  huge  joke.  Of  course  the  Gov¬ 
ernment  refused  payment. 

The  most  important  step  which  Congress  should  first  take  is  that  of 
cancelling  the  Central’s  lease  to  the  Southern  Pacific  Company  of  Ken¬ 
tucky.  In  addition  to  the  fact  that  it  was  a.lease  by  the  Directors,  there 
was  not  even  a  full  Board  present  at  the  meeting,  while  four  out  of  the  six 
present  were  dummies  of  Stanford  &  Co.,  holding  but  a  few  shares  of  stock 
necessary  to  qualify  them  to  serve  as  Directors.  As  stated  before,  the 
President  and  Secretary  signing  the  lease  on  behalf  of  the  Southern  Pacific 
Company  were  also  dummies;  indeed,  it  was  a  lease  hy  the  Directors  to 
themselves.  There  was  no  mention  made  in  the  published  notice  of  the 
Central  Pacific  stockholders’  annual  meeting  following  the  action  of  the 
Board,  that  business  of  unusual  importance  was  to  come  up  for  con¬ 
sideration.  Such  stockholders’  meeting  took  place  in  April,  1885,  closely 
following  the  aforesaid  Directors’  meeting.  For  these  two  reasons,  out  of 
the  entire  680,000  shares  of  stock  outstanding  there  were  but  358,895 
shares  represented  at  the  meeting,  or  a  little  over  one-half  of  the  total 
issue.  Nearly  all  such  stock  belonged  to  Stanford  &  Co.,  and  was  put 
in  the  names  of  clerks  in  Mr.  Huntington’s  New  York  office.  Of  these,  the 
following  maybe  cited  :  20,096  shares  was  voted  in  the  name  of  I.  E.  Gates ; 
S.  A.  Blend,  16,320  shares;  E.  H.  Pardee,  14,950  shares;  J.  J.  Coyne, 
40,190  shares ;  J.  B.  Hawes,  28,210  shares;  R.  J.  Phillips,  10,905  shares ; 
D.  A.  Rose,  40,640  shares ;  besides  many  others  of  smaller  amounts. 
Leland  Stanford  voted  5,029  shares ;  C.  P.  Huntington  only  300  shares,  and 
Mrs.  Hopkins  (representing  the  Hopkins  estate)  but  336  shares. 

The  re-marking  of  the  rolling-stock  was  at  once  begun,  and  Messrs. 
Stanford  and  Miller  were  “  elected  ”  by  the  Southern  Pacific  Company  to 
the  offices  of  President  and  Secretary  respectively,  vice  the  private  book¬ 
keeper  and  private  secretary  resigned.  The  whole  thing  was  nothing  less 
than  a  bold  design  originating  entirely  with  Stanford  &  Co.  to  suit  their 


CENTRAL  PACIFIC  RAILROAD. 


27 


own  interests,  and  in  which  the  Central  Pacific  stockholders  at  large  took 
no  part  whatever. 

For  some  time  after  the  Government  had  learned  of  the  lease  it  refused 
to  recognize  it  ;  but  through  liberally  advertising  the  Southern  Pacific 
Company  as  lessee  of  the  Central,  together  with  the  changes  occurring  in 
the  administration  at  Washington,  etc.,  soon  enabled  Stanford  &  Co.  to 
force  the  new  Company  upon  the  Government’s  notice,  and  secured  it  the 
privilege  of  transacting  the  business  of  the  Central  Pacific. 

Prior  to  the  lease  the  Central  Pacific  held  in  its  own  name  the  leases 
of  several  valuable  feeders  in  California,  but  which,  on  October  21,  1886, 
was  cancelled  by  the  Directors  and  new  leases  made  directly  to  the  Southern 
Pacific  Company.  Even  this  important  act  was  not  first  submitted  for 
consideration  of  the  stockholders ;  in  fact  it  was  not  until  April,  1888, — 
stockholders’ annual  meeting, — that  it  was  shuffled  through  as  having  been 
approved  by  them.  The  method  resorted  to  on  this  occasion  was  much  the 
same  as  that  employed  in  1885.  The  simplicity  of  the  resolution  voted  on 
may  be  seen  : 

Whereas ,  This  Company,  by  order  of  its  Board  of  Directors,  duly  made  and  entered 
of  record  on  the  21st  day  of  October,  1886,  did  execute  an  agreement  in  the  words  and 
figures  following,  to  wit  : 

(Follows  agreement  between  the  C.  P.  R.  R.  Co.  and  S.  P.  Co.  cancelling  leases  of 
the  Cal.  Pac.  R.  R.,  Am.  Br.  R.  R.,  Berk.  Br.  R.  R.,  S.  P.  &  T.  R.  R.,  and  Nor.  Ry.) 

Now,  therefore,  we,  the  stockholders  of  the  Central  Pacific  Railroad  Company,  do 
hereby  approve,  ratify,  and  confirm  the  said  agreement  and  all  the  covenants,  provis¬ 
ions,  and  stipulations  therein  contained,  and  all  and  singular  the  Acts  of  the  Board  of 
Directors  and  officers  of  this  Company  done  and  performed  in  relation  thereto. 

Messrs.  Stanford,  Huntington,  and  Crocker  absented  themselves  from 
the  meeting,  and  their  stock  was  voted  in  the  names  of  clerks,  as  before. 
A  proxy  representing  over  77,000  shares  had  in  the  meantime  been  secured 
from  a  European  stockholder  and  was  voted  at  the  meeting.  This  fact 
made  it  unnecessary  for  Stanford  &  Co.  to  cast  the  full  number  of  shares 
they  control,  so  they  voted  much  less  than  usual.  Their  motive  in  so 
doing  will  be  better  appreciated  when  I  say  that  the  agreement  between 
the  Southern  Pacific  Company  and  the  Pacific  Improvement  Company  to 
extend  the  line  of  the  California  and  Oregon  Division  of  the  Central 
(presently  noted)  was  also  submitted  for  approval  at  this  meeting. 

The  Government  will  understand  the  significance  attached  to  the  can¬ 
cellation  of  the  above  leases  should  the  Directors  wish  to  reject  its  terms 
of  settlement.  With  the  facts  herewith  given,  however,  Congress  will 
have  no  trouble  in  restoring  the  leases  to  the  Central,  should  it  be  decided 
to  take  the  management  of  the  road  out  of  the  Directors’  hands.  With 
control  of  these  lines  the  Central  would  be  wholly  independent  and  prove 
very  profitable  to  any  one  to  operate.  The  total  earnings  of  the  aided 
portion  of  the  Central  alone  (860.66  miles),  from  November  6,  1869,  to 
June  30,  1878, 


Amounted  to . $85,878,514.83 

Total  expenses,  including  taxes,  to . .  48,449,905.90 

Leaving  a  total  net  earnings  of . $37,428,608.93 


The  fact  that  Stanford  &  Co.  acquired  possession  of  these  branch  lines 
through  the  Government’s  aid  and  the  profits  of  the  Central,  as  above, — 
which  should  have  been  applied  towards  extinguishing  the  debt, — makes 
the  Government,  or  the  Central  Pacific,  if  it  has  to  pay  the  loan  out  of  its 
future  earnings,  all  the  more  entitled  to  the  feeders.  In  any  event,  the 
Government  will  shortly  be  called  upon  to  redeem  its  liberal  issue  of 


28 


CENTRAL  PACIFIC  RAILROAD. 


bonds,  requiring  an  enormous  outlay  of  the  public  money;  while  the  pres¬ 
ent  security  is  but  a  second  lien  on  the  property,  and  scant  property  at 
that.  In  contrast  to  this  I  may  remind  the  reader  that  the  combined 
wealth  of  the  four  principal  Directors  is  to-day  estimated  at  about  $250,- 
000,000.  They  have  never  been  engaged  in  any  business  besides  managing 
railroads,  so  that  their  colossal  fortunes  were  made  directly  out  of  the 
Central  Pacific. 

The  Directors  made  the  Central  pay  roundly  for  the  leases  while  it  held 
them,  it  is  true,  but  the  control  of  them  is  the  vital  point.  As  the  Major¬ 
ity  Commission  state,  page  80,  in  many  instances  the  rental  which  the 
Central  had  to  pay  was  fixed  by  the  Directors,  at  a  figure  which  permitted 
the  declaration  of  dividends  on  the  stock  of  such  leased  road,  in  addition 
to  the  payment  of  the  interest  on  its  bonds. 

Should  Congress  not  cancel  the  lease  to  the  Southern  Pacific  Company, 
and  permit  the  present  managers  to  operate  the  Central  through  that  Com¬ 
pany,  the  Directors  might  at  any  future  time  decline  to  operate  the  road 
and  turn  it  over  to  the  Government.  In  all  probability  within  the  next 
two  years  other  transcontinental  lines  will  have  secured  independent 
entrance  into  California,  and  over  more  feasible  routes  since  discovered, 
and  less  expensive  to  operate  than  the  Central.  The  fierce  competition 
following  would  give  the  Directors  all  they  could  do  to  supply  their  own 
Southern  Pacific  line  with  business,  and  they  would  then  abandon  the 
Central  Pacific,  retaining  the  feeders.  Under  such  circumstances  no  one 
would  care  to  operate  the  road,  with  its  heavy  debt  still  unpaid,  and  the 
Government  would  be  forced  to  hold  it  as  a  monument  to  one  of  the  worst 
swindles  ever  accomplished  against  it.  The  irresponsible  methods 
which  Stanford  &  Co.  employed  in  consummating  the  leases,  together 
with  the  releases  they  issue  to  themselves  (presently  shown),  are  calcu¬ 
lated  to  protect  their  estates  from  attachment,  and  their  heirs  and  suc¬ 
cessors  in  interest  can  defy  collection  of  the  debt.  Since  the  lease,  the 
meetings  of  the  Central  Pacific  Directors  have  not  been  regular,  at  least,  if 
held,  their  proceedings  are  not  recorded  in  the  book  kept  for  that  purpose. 
The  minutes  show  intervals  of  months  between  dates  of  meeting,  and  yet 
scarcely  a  week  passes  without  important  matters  coming  up  and  are  acted 
upon,  in  which  the  Central  is  directly  concerned.  This  is  contrary  to  the 
Company’s  By-laws,  Section  5  of  which  provides  that  regular  weekly 
meetings  shall  be  held  by  the  Directors  ;  and  they  were  so  held  prior  to 
the  lease.  Now,  however,  its  affairs  are  managed  by  the  Southern  Pacific 
Company  of  Kentucky,  and  there  is  little  to  indicate  how  it  fares  at  its 
hands. 

When  the  Directors  fixed  the  amount  of  guaranteed  rental  to  be 
allowed  the  Central  under  lease,  the  Southern  Pacific  Company  had 
assumed  a  “floating  debt”  against  the  road,  and  to  which  the  Directors 
intended  applying  such  rental, — just  as  the  United  States  is  at  present 
applying  the  amounts  allowed  for  transportation  on  non -aided  lines,  to 
which  the  Directors  so  vigorously  object.  In  the  former  case,  however, 
the  annual  rental  was  all  that  the  stockholders  could  look  to  for  dividends, 
but  the  Directors  had  hoped  to  withhold  such  until  the  above  floating 
debt  was  satisfied,  amounting  to  $12,873,945.61.  They  had  actually 
applied  two  or  three  of  such  annual  rentals  before  the  stockholders  in 
Europe  realized  their  intention.  So  loud  did  the  protests  become,  that 
the  plan  was  abandoned,  and  the  money  was  thenceforth  paid  out  in  regu¬ 
lar  semi-annual  dividends  of  one  per  cent.  The  Directors  were  not  long 
in  finding  another  way  of  collecting  the  debt  from  the  Central,  but  set  to 
work  mortgaging  its  property  and  issued  bonds  to  the  Southern  Pacific 


CENTRAL  PACIFIC  RAILROAD. 


29 


Company  to  satisfy  the  claim.  In  the  following  annual  report  to  the 
stockholders  (1887),  Mr.  Stanford  informs  the  stockholders,  in  his  usual 
smooth  language,  how  he  managed  to  get  even,  and  at  the  same  time 
meet  their  demand.  He  says: 

On  January  1,  1885,  just  prior  to  tlie  lease  to  the  Southern  Pacific  Company,  there 
was  a  net  floating  debt  of  $12,873,945.61.  This  has  been  reduced  each  year,  till,  on 
December  31,  1887,  the  floating  debt  was  wiped  out  and  there  remained  a  surplus  of 
$1,970,194.65.  This  result  has  been  chiefly  accomplished  by  the  sale  of  supplies  and 
materials  on  hand  to  the  Southern  Pacific  Company  at  the  commencement  of  the  lease, 
by  the  non-payment  of  dividends  for  the  period,  and  by  the  issue  of  bonds. 

The  floating  debt  now  being  provided  for,  and  there  being  no  other  present  obstacle 
to  the  payment  of  dividends,  your  Board  of  Directors  has  declared  a  dividend  (No.  18) 
of  one  per  cent.,  or  $1.00  per  share,  payable  on  the  capital  stock  of  the  Company,  on 
and  after  February  1,  1888. 

It  would  be  interesting  to  know  just  how  much  of  the  property  belong¬ 
ing  to  the  Central,  on  which  the  Government  had  a  lien,  was  included  in 
this  “sale  of  supplies  and  material  on  hand  to  the  Southern  Pacific  Com¬ 
pany/’  and  the  amount  paid  therefor,  if  any.  There  is  not  much  doubt 
that  such  property  has  been  put  beyond  reach  of  the  Government,  but  a 
complete  inventory  would  have  to  be  taken  by  it  in  order  to  determine  to 
what  extent  it  has  been  practised.  Of  course  Stanford  &  Co.  hardly  expect 
this  step ;  but  should  it  be  done,  and  the  Government  finds  that  its  security 
has  greatly  diminished,  the  Directors  will  doubtless  attribute  it  to  “  deteri¬ 
oration,”  “worn  out  and  not  renewed,”  or  “replaced  by  property  pur¬ 
chased  and  owned  by  the  Southern  Pacific  Company.”  These  are  common, 
every-day  terms  used  by  the  officers  of  the  Company  when  accounting  for 
the  disappearance  of  rolling-stock  or  other  property  belonging  to  a  par¬ 
ticular  road,  the  Central  included. 

There  is  a  provision  in  the  lease  providing  that  the  Southern  Pacific  Com¬ 
pany  may  change  the  terms  thereof,  in  the  event  that  the  action  taken  by 
the  Government  regarding  annual  payments  to  it  towards  the  debt  should 
prove  unfavorable.  In  announcing  the  decision  to  declare  dividends  as 
above,  it  will  be  noticed  that  the  stockholders  are  informed  that  there  are 
at  present  no  obstacles.  Since  the  Directors  find  that  they  are  now 
expected  to  pay  out  the  guaranteed  rental  in  regular  dividends,  they  will 
on  the  slightest  pretense  change  the  terms  in  the  lease,  either  so  as  to 
reduce  the  rental,  or  specify  a  “percentage”  to  be  paid  from  the  yearly 
net  earnings  ;  and  in  the  latter  event  they  will  have  no  trouble  in  regulat¬ 
ing  the  net  earnings,  any  more  than  when  they  defeated  the  purpose  of 
the  Thurman  Act.  Had  the  stockholders  known  at  the  time  how  Stanford 
&  Co.  effected  the  lease,  it  is  doubtful  if  they  would  have  contented  them¬ 
selves  with  such  a  paltry  dividend  in  the  form  of  a  donation ;  for  many  of 
the  stockholders  paid  as  high  as  $70  for  their  stock  per  share. 

In  case  there  is  any  one  who  still  thinks  that  Stanford  &  Co.  are  man¬ 
aging  the  roads  under  their  control  in  the  interest  of  the  stockholders,  I 
propose  to  furnish  conclusive  evidence  to  the  contrary,  and  which  ought 
to  discourage  even  the  most  hopeful. 

The  Morgan  Louisiana  and  Texas  Railroad  and  Steamship  Line  is  also 
operated  by  the  Southern  Pacific  Company,  under  the  lease  of  March  1,  1885. 
When  preparing  statements  for  publication  in  the  annual  report  of  the 
Southern  Pacific  Company  to  the  stockholders  for  the  year  1888,  of  the 
financial  condition  of  the  roads  operated,  the  Secretary  of  the  Southern 
Pacific  Company  wrote  the  following  letter  to  Mr.  Crocker,  which  explains 
itself : 


30 


CENTRAL  PACIFIC  RAILROAD. 


San  Francisco,  October  10,  1888. 

Col.  C.  F.  Crocker,  Vice-President  S.  P.  Go. 

Dear  Sir  :  The  Southern  Pacific  Company  is  indebted  to  the  Morgan’s  La.  &  Texas 
R.  R.  &  S.  S.  Co.  to  the  amount  of  about  $1,000,000.  As  there  are  other  assets  available 
also  of  the  Morgan  Company,  which  more  than  offset  its  floating  debt,  this  $1,000,000, 
if  collected,  would  be  available  as  a  dividend.  If  the  capital  stock  of  the  Morgan  Com¬ 
pany  amounts  to  $5,000,000,  it  would  make  a  dividend  of  20  per  cent.  This  balance 
represents  accumulations  of  the  Morgan  Company  up  to  date,  which  have  not  been 
used.  Under  the  lease  the  rental  which  it  is  currently  receiving  would  probably  be 
about  offset  by  the  new  equipment  and  construction  charges,  which,  as  betterments 
and  additions,  are  chargeable  to  the  railroad  Company. 

In  view  of  this  present  surplus,  which  I  suppose  it  will  be  necessary  to  show  in  the 
next  annual  report  of  the  Company,  I  would  call  your  attention  to  the  outstanding 
stock  of  the  Morgan  Company,  the  disposition  of  the  capital,  so  far  as  I  have  any 
information,  being  as  follows  : 

SHARES. 

Owned  by  Southern  Pacific  Company .  40,627 

“  “  Morgan  Company .  60 

Other  ownership .  9,313 


Total .  50,000 

(If  the  outside  ownership  is  represented  by  this  9,313  shares,  those  stockholders 
could  reasonably  demand  a  dividend  upon  an  exhibit  of  the  Company’s  affairs.) 

The  above  is  for  your  information. 

(Signed)  G.  L.  Lansing,  Sec’y  and  Gontr. 

The  last  paragraph,  shown  in  parenthesis,  was  written  and  afterwards 
stricken  out,  being  understood  as  a  matter  of  course.  Notwithstanding 
that  the  Directors  themselves  are  heavy  stockholders  in  the  lines  they  oper¬ 
ate,  they  would  rather  keep  a  surplus  and  loan  it  to  the  Southern  Pacific 
Company  for  their  own  use.  Before  this  property  was  sold  to  the  Southern 
Development  Company  (Stanford  &  Co.),  regular  dividends  were  declared 
on  its  stock,  which  had  a  very  high  market  value.  This  may  be  inferred 
from  the  fact  that  Stanford  &  Co.,  when  turning  over  the  stock  to  the 
Southern  Pacific  Company,  exchanged  it  at  the  rate  of  $450  per  share  ;  in 
other  words,  they  issued  to  themselves  four  and  one-half  shares  of 
Southern  Pacific  Company  stock,  having  a  par  value  of  $100,  for  one  share 
of  the  Morgan.  This  information  is  of  interest  to  the  outside  stockholders 
in  the  Morgan  Company,  as  it  entitles  them  to  a  similar  rate  of  exchange, 
a  fact  worth  remembering  should  their  stock,  through  the  Southern  Pacific 
Company’s  management  of  the  road,  cease  to  be  of  value.  There  had  been 
no  dividends  declared  on  the  stock  since  Stanford  &  Co.  first  took  posses¬ 
sion,  up  to  the  date  of  the  above  letter,  the  20  per  cent,  referred  to  cover¬ 
ing  a  period  of  over  four  years.  The  Southern  Pacific  Company  owned 
40,000  out  of  the  50,000  shares  outstanding,  and  had  the  use  of  the  road’s 
profits  during  all  that  time.  One  could  hardly  imagine  that  the  Directors 
would  begrudge  paying  it  out  in  dividends  at  the  last  moment ;  yet  the 
General  Manager  of  the  Company’s  Atlantic  System,  in  which  system  the 
Morgan  lines  are  included,  referring  to  the  proposed  dividend,  telegraphed 
in  cipher  from  New  Orleans  on  December  27,  18S8,  that  “the  attorneys 
here  say  it  will  not  be  necessary  to  advertise  it.” 

If  these  Directors  are  so  reluctant  to  declare  dividends  on  stock,  when 
there  is  a  legitimate  surplus  on  hand,  surely  the  Government  need  not 
expect  them  to  faithfully  live  up  to  any  future  agreement  regarding  the 
payment  of  its  claim,  unless  it  is  clearly  to  their  interest  to  do  so. 

When  Stanford  &  Co.  incorporated  the  Southern  Pacific  Company,  its 
capital  stock  authorized  was  fixed  at  $1,000,000.  It  had  no  property  of 
any  kind,  it  being  given  out  that  its  purpose  was  merely  to  lease  and  oper¬ 
ate  roads.  The  main  object  of  its  promoters,  however,  was  to  secure  to 


CENTRAL  PACIFIC  RAILROAD. 


31 


the  Southern  Pacific  Company  the  valuable  stock  of  the  roads  leased,  by 
exchanging  its  own  therefor.  For  this  purpose  the  Directors  soon  after 
increased  the  authorized  issue  from  $1,000,000  to  $100,000,000,  it  still 
having  little  or  no  property  of  its  own.  They  now  began  a  wholesale 
exchange  of  the  stock,  which  soon  exhausted  the  supply.  Some  plausible 
excuse  had  to  be  invented  for  still  further  increasing  the  capital  stock,  so 
the  Directors  consolidated  several  branch  lines  in  California.  On  the 
strength  of  this  they  again  increased  the  capital  stock  from  $100,000,000 
to  $150,000,000  ;  but  it  was  not  for  the  purpose  of  “  acquiring  the  propri¬ 
etorship  of  additional  lines,”  as  given  out  by  Stanford  &  Co.,  for  they 
already  possessed  the  roads  they  referred  to ,  and  they  were  then  being  oper¬ 
ated  under  lease. 

President  Stanford  touches  upon  the  matter  very  lightly  in  the  annual 
report  to  the  stockholders  for  1888.  He  says  : 

The  capital  stock  fixed  by  the  Charter  was  $1,000,000,  with  power  to 
increase  the  amount  from  time  to  time,  as  might  be  determined  by  the  Board  of 
Directors  with  the  approval  of  at  least-two-thirds  in  interest  of  the  stockholders.  In 
1884  the  original  amount  of  $1,000,000  was  paid  in  cash  and  the  authorized  capital 
was  increased  to  $100,000,000.  With  the  issue  of  $87,076,200  of  this  new  stock  the 
greater  part  of  the  capital  stock  was  acquired  in  the  proprietary  lines  included  in  the 
Omnibus  lease.  For  the  purpose  of  acquiring  the  proprietorship  of  additional  lines 
the  authorized  capital  was  fixed  in  1888  at  $150,000,000. 

In  the  face  of  this  I  will  show  a  few  of  the  names  of  parties  holding 
that  Company’s  stock,  and  voted  at  the  stockholders’  meeting  in  1889: 

Western  Development  Company,  80,171  ;  Southern  Development  Company,  153,- 
109  ;  Pacific  Improvement  Company,  140,081  ;  LelanA  Stanford,  157,389  ;  C.  Crocker 
(estate),  136,879  ;  M.  F.  S.  Searles  (Hopkins),  134, 904. * 

These  are  among  the  largest  holders  ;  there  were  1,059,387  shares  cast 
and  controlled  by  the  principals,  under  names  of  employes  in  many 
instances. 

An  officer  of  the  Southern  Pacific  Company  called  the  attention  of  the 
Investigation  Commission  to  the  fact  that  the  Directors  were  paid  a  smaller 
salary  than  was  paid  by  any  other  Company  of  similar  importance  in  the 
United  States.  This  was  as  an  argument  that  their  management  was  an 
economical  one.  I  will  go  further  and  state  that  Stanford  &  Co.  pay  sev¬ 
eral  of  the  Company’s  officers  more  than  twice  the  amount  of  salary  they 
allow  themselves.  And  why  is  this  ?  From  my  personal  knowledge  I  can 
say  that  there  is  not  one  of  these  high-salaried  officers,  nor  an  individual 
in  the  employ  of  the  Company,  who  would  seriously  oppose  any  transaction 
which  they  knew  to  be  in  the  interest  of  Stanford  &  Co.,  though  mani¬ 
festly  injurious  to  the  stockholders.  They  are  wholly  governed  by  these 
men  and  receive  their  orders  from  them.  Stanford  &  (Jo.  are  the  exclusive 
owners  of  the  several  private  corporations  which  exist  and  feast  upon  the 
profits  of  the  roads  under  control ;  and  in  the  possession  of  the  Pacific 
Improvement,  Western  Development,  and  Southern  Development  Com¬ 
panies  are  the  funds  belonging  to  the  various  railroads,  including  bonds 
and  other  valuable  assets. 

It  is  the  custom  of  the  Directors  when  they  wish  to  get  possession  of 
any  surplus  belonging  to  one  of  the  roads,  to  appoint  themselves  a  “  Com¬ 
mittee”  to  “  invest”  such  surplus,  and  then  invariably  loan  it  to  the 
Pacific  Improvement  Company.  For  instance  :  at  the  Central  Pacific 
Directors’  meeting  on  August  26,  1886,  a  Sinking  Fund  Committee  was 
appointed  “to  loan  or  invest  the  money  standing  in  the  various  sinking 
funds  of  the  Company.”  At  their  meeting,  held  September  30,  the  Com¬ 
mittee  reported  as  follows : 


32 


CENTRAL  PACIFIC  RAILROAD. 


San  Francisco,  Sept.  30,  1886. 

To  the  Board  of  Directors,  Central  Pacific  B.  B.  Co. 

Gentlemen  :  We,  the  undersigned  Committee,  appointed  for  the  purpose  of 
investing  the  money  in  the  sinking  funds  of  this  Company,  respectfully  report  as  fol¬ 
lows  :  No  suitable  investment  presenting  itself  at  present,  we  have,  pursuant  to  the 
resolution  of  your  Board,  dated  August  26,  1886,  loaned  the  amount  in  the  sinking 
funds,  namely,  $3,032,410. 33, to  the  Pacific  Improvement  Company  on  thirty  days’  call, 
at  three  per  cent.,  taking  as  collateral  G.  H.  &  8.  A.  first  mortgage  five  percent,  bonds 
at  ninety  cents.  Yours  respectfully,  Timothy  Hopkins, 

C.  F.  Crocker, 

W.  Y.  Huntington. 

It  would  require  but  a  slight  idea  of  the  general  custom  of  the  Direct¬ 
ors  to  understand  that  this  was  a  cut-and-dried  affair,  and  that  no  other 
investment  was  even  thought  of.  Nor  was  the  money  ever  returned  to 
the  Central  Pacific,  but,  instead,  a  “  proposition  ”  was  received  by  the  Di¬ 
rectors,  at  their  meeting  on  May  2,  1887,  from  the  Pacific  Improvement 
Company,  to  pay  its  above  note  in  Central  Pacific  Fifty-year  Bonds,  dated 
October  1,  1886.  Of  course  the  proposition  was  accepted  and  the  bonds 
placed  in  the  sinking  funds.  They  had  only  lately  been  issued  to  the  Pa¬ 
cific  Improvement  Company  in  part  payment  on  its  contract  with  the 
Central,  for  the  construction  of  the  California  and  Oregon  road  northward 
to  Oregon.  What  right  have  Stanford  &  Co.  to  use  accumulated  funds  of 
a  road  to  privately  redeem  their  own  bonds  held  by  the  Pacific  Improve¬ 
ment  Company  ?  Why  not  purchase  therewith  the  outstanding  bonds  of 
the  Company,  and  for  which  the  sinking  funds  were  established?  The 
Trustees  are  appointed  by  Stanford  &  Co. ;  the  active  one  of  the  two  so 
appointed  is  invariably  an  employe,  and,  of  course,  takes  his  instructions 
from  the  Directors  ;  the  other  is  usually  a  figure-head  chosen  on  account 
of  his  prominence,  and  frequently  a  resident  of  the  East.  The  Central 
has  always  had  to  contend  with  just  such  transactions  as  these,  and  in 
almost  every  case  is  the  victim  :  the  reader  has  but  to  recall  the  loans  to 
the  Contract  and  Finance  Company,  aggregating  $5,700,000,  which  it 
failed  to  return. 

Since  the  above  transaction  with  the  Pacific  Improvement  Company, 
the  Directors  again  relieved  the  Central  Pacific  of  the  accumulations  in  the 
sinking  funds,  this  time  by  purchasing  therewith  another  lot  of  these 
Central  Pacific  Fifty-year  Bonds,  issuing  one  thousand  of  them  for  that 
purpose.  They  were  also  placed  to  the  credit  of  the  sinking  funds.  The 
idea  of  the  Central  Pacific  thus  purchasing  a  series  of  its  own  bonds  with 
its  profits  and  placed  to  its  own  credit,  bearing  interest  against  itself  at 
the  rate  of  six  per  cent.,  may  seem  a  proper  transaction,  but  only  to  the 
Directors  who  get  the  money. 

The  Southern  Pacific  Company,  as  lessee,  contracted  with  the  Pacific 
Improvement  Company  for  the  latter  to  build  a  second  track  from  Oak¬ 
land  to  Port  Costa,  Cal.,  a  distance  of  about  twenty-six  miles.  Aside 
from  the  material  supplied,  the  work  necessary  amounted  to  but  little 
more  than  laying  the  rails  over  a  course  already  in  use,  yet  the  Pacific  Im¬ 
provement  Company  was  allowed  $25,000  per  mile,  or  a  total  cost  of  $650,- 
000  for  the  twenty-six  miles. 

The  Directors  are  almost  as  unmerciful  to-day  towards  the  interest  of 
the  Central  Pacific,  when  fixing  the  charges  of  the  Pacific  Improvement 
Company  for  work  done,  as  in  the  days  of  the  Contract  and  Finance  Com¬ 
pany.  Their  terms  in  the  contract  for  the  extension  of  the  California  and 
Oregon  line  were  simply  outrageous.  The  severe  criticisms  of  the  Major¬ 
ity  Commission  regarding  the  extortionate  charges  will  suffice  to  give  an 
idea  of  its  magnitude. 


CENTRAL  PACIFIC  RAILROAD. 


33 


The  actual  cash  value  then  paid  to  the  Pacific  Improvement  Company  for  the  con¬ 
struction  from  Delta  to  the  State  line,  and  for  the  equipment,  was: 

In  stock . $3,840,000 

In  bonds  .  4,500,000 

Total . $8,340,000 

The  books  of  the  Pacific  Improvement  Company,  showing  the  actual  cost  of  this 
construction  and  of  the  equipment,  were  examined  by  Mr.  Stevens,  and  this  cost,  exclu¬ 
sive  of  the  unfinished  work,  which  Mr.  Douty  (the  Secretary  of  the  Pacific  Improve¬ 
ment  Company)  testified  would  not  exceed  the  $317,000  of  bonds  which  had  been 
retained,  was  $3,138,609.32.  (See  evidence  of  Stevens,  vol.  6,  p.  3528.)  The  ac¬ 
curacy  of  the  conclusions  reached  by  Mr.  Stevens  was  conceded  by  the  counsel  for 
the  Central  Pacific  road.  (S*-e  Hay  mend’s  statement,  vol.  6,  p.  3534.) 

In  the  statement  of  cost  of  construction  contained  in  the  table  at  page  3531,  the 
retained  $317,000  bonds  have  been  added  to  the  above  figure,  making  the  total  cost  of 
the  completed  road  and  equipment  $3,505,609.32.  As  compensation  for  this  expendi¬ 
ture,  Stanford,  Huntington,  and  Crocker  have  voted  to  themselves  stock  and  bonds  of  the 
value,  as  above  stated,  of  $8,340,000.  And  this  extraordinary  transaction  is  being  con¬ 
summated  to-day  in  the  face  of  this  investigation  and  in  violation  of  every  duty  which 
these  Directors  owe  to  the  stockholders  of  that  Company  and  to  the  Government  as  its 
chief  creditor. 

It  has  been  remarked  before  that  the  conclusion  reached  in  the  case  of  the  United 
States  against  the  Union  Pacific  Railroad  Company,  to  recover  misappropriated  assets 
from  the  Directors,  that  no  such  suit  could  be  sustained  until  after  the  maturity  of 
the  debt,  was  unfortunate.  The  application  of  this  principle  to  the  transaction  now 
under  discussion  presents  the  results  of  this  decision  with  peculiar  force. 

The  United  States  cannot  sue,  because  the  debt  is  not  due.  The  corporation  will 
not  sue,  because  it  is  controlled  by  the  wrong-doers.  The  stockholders  dare  not  sue, 
because,  under  the  laws  of  California,  they  are  personally  liable  for  the  obligations  of 
the  Company.  (See  Bergin’s  statement,  vol.  5,  p.  2670.)  Report  Majority  Commission, 
pp.  79  and  80. 

I  can  add  nothing  to  the  above,  except  to  say  that  as  long  as  Stan¬ 
ford  &  Oo.  have  the  power  of  loaning  money  to  themselves  through  their 
private  firms,  contracting  with  themselves  on  behalf  of  the  roads,  etc.,  just 
so  long  will  they  be  found  willing  to  manage  the  various  properties,  and 
for  a  less  salary  than  is  paid  to  Directors  of  other  railroads,  who  serve  the 
stockholders  for  the  salary  alone. 

If  there  is  anything  lacking  to  prove  the  total  unfitness  of  "Stanford  & 
Co.  to  manage  the  roads  in  the  interest  of  the  stockholders,  and  that  they 
are  undeserving  of  the  further  confidence  of  the  Government,  I  can  fur¬ 
nish  such  proof  by  showing  a  most  extraordinary  measure  of  self-protec¬ 
tion  taken  by  these  principal  Directors  against  liability  for  their  wrong¬ 
doings.  Furthermore,  I  call  upon  anyone  to  name  a  road  in  the  country 
whose  stockholders  ever  voted  to  their  Directors  resolutions  in  the  form 
of  annual  releases;  and  there  is  not  a  bona  fide  stockholder  of  the  Central 
Pacific,  excepting  the  above  principals,  who  is  even  aware  of  the  practice, 
much  less  favoring  it. 

The  following  form  of  release  is  the  same  which  is  “ adopted”  annually 
at  the  meeting  of  stockholders  of  both  the  Central  Pacific  and  Southern 
Pacific  Companies,  and  on  at  least  one  occasion  they  were  even  passed  at 
ordinary  Board  meetings  of  the  Directors  of  those  two  Companies, — on 
October  7  and  8  respectively,  when  they  voted  the  contract  for  the  exten¬ 
sion  of  the  California  and  Oregon  line  to  the  Pacific  Improvement  Com¬ 
pany: 

Whereas,  The  President  of  this  Company,  Leland  Stanford;  the  First  Vice-President 
of  this  Company,  Collis  P.  Huntington;  the  Second  Vice-President  of  this  Company, 
Char’es  F.  Crocker,  and  the  Treasurer  of  this  Company,  Timothy  Hopkins,  have  done 
various  acts  and  things  in  the  interest  of  and  for  the  benefit  of  tLis  Company,  and 
have  made  various  payments  of  money,  for  which  vouchers  have  not  been  received 
from  the  parties  to  whom  payments  were  made  ;  and 


34 


CENTRAL  PACIFIC  RAILROAD. 


Whereas,  The  nature  of  such  acts  and  things,  and  the  amount  of  such  payments 
have  been  exhibited  and  fully  made  known  and  explained  to  us  ;  now,  therefore^ 

liesolved,  That  the  stockholders  of  this  Company  do  hereby  ratify  and  approve  all 
such  acts  and  doings  and  payments  made  by  said  persons,  and  do  hereby  expressly 
waive  the  production  or  filing  of  vouchers  therefor  ;  and  the  President  or  a  Vice-Presi¬ 
dent  and  the  Secretary  of  this  Company  be  and  they  are  hereby  authorized  and 
directed  to  execute  fuil  and  complete  releases,  under  the  seal  of  the  Company,  to 
said  Stanford,  Huntington,  Crocker,  and  Hopkins,  and  deliver  the  same  to  the  respec¬ 
tive  .parties  ;  which  releases  shall  be  in  substantially  the  following  form,  to  wit  : 

Whereas, . has  been  and  is  the . of  this,  the  Central  Pacific 

Railroad  Company,  and  has,  under  and  by  virtue  of  the  power  and  authority  conferred 

upon  him  as  such . done  certain  acts  and  performed  certain  services  for 

said  Company,  both  in  the  City  and  County  of  San  Francisco,  State  of  California,  and 
in  the  City  of  New  York  and  elsewhere,  and  has  collected  and  received  certain  moneys 
of  the  Company,  and  has  paid,  laid  out,  and  expended  certain  moneys  for  the  uses  and 
purposes  and  for  the  benefit  of  said  Company,  and  in  its  name,  place,  and  stead,  and 
on  its  behalf,  has  made  and  endorsed  its  checks,  notes,  drafts,  and  bills  of  exchange, 
and  has  executed  and  delivered  contracts,  agreements,  and  instruments  of  various 
kinds,  has  borrowed  money  for  said  Company,  and  has  pledged  and  hypothecated 
stock,  bonds,  and  other  securities  of  the  Company  as  collateral  for  money  borrowed, 
has  made  purchases  for  said  Company,  has  paid,  laid  out,  and  expended  moneys  for 
interest,  freight,  loans,  insurance,  commissions,  purchases,  and  for  other  obligations 
and  purposes  of  said  Company,  and  has  employed  clerks,  agents,  counsel,  attorneys, 
and  others,  in  and  about  the  business  of  the  Company,  in  its  service  and  for  its  benefit, 
and  has  paid  salaries,  wages,  expenses,  and  compensation  to  persons  so  employed,  and 
has  compromised,  settled,  and  adjusted  claims  due  and  owing  to  and  by  said  Com¬ 
pany,  and  has  done  and  performed  various  acts  and  things,  and  has  attended  to  and 
managed  generally  the  affairs  and  business  of  said  Company  in  the  State  of  New 
York  and  in  the  State  of  California  and  elsewhere,  and  has,  from  time  to  time,  ren¬ 
dered  accounts  and 'reported  his  acts  and  duties  to  said  Company,  which  said  accounts 
and  reports  have  been  examined,  audited,  found  correct,  and  approved  by  said  Com¬ 
pany,  about  and  of  all  which  this  Company  has  full  advice  and  knowledge  ; 

Now,  Therefore,  the  said  Central  Pacific  Railroad  Company,  with  a  full 
knowledge  of  all  of  the  facts  and  circumstances  relating  to  said  transactions,  and  each 
of  them,  in  consideration  of  the  premises  and  of  the  payments  of  moneys  for  the  benefit 

of  said  Company  by  the  said . and  for  and  in  consideration  of  the 

further  sum  of  one  dollar,  lawful  money  of  the  United  States  of  America,  to  it  in  hand 

paid  by  said . .  hath  ratified,  confirmed,  and  adopted,  and  doth  hereby 

ratify,  confirm,  and  adopt  all  the  acts  and  deeds  of  said  . . . .  in  the  pre¬ 

mises  as  its  own  acts  and  deeds,  and  hath  remised,  released,  and  forever  discharged, 
and  by  these  presents  for  itself  and  its  successors,  doth  remise,  release,  and  forever 

discharge  the  said . . ,  his  heirs,  executors,  and  administrators  of  and 

from  all  manner  of  action  and  actions,  cause  of  action  and  causes  of  action,  suit's 
debts,  dues,  reckonings,  bonds,  bills,  specialties,  covenants,  contracts,  controversies, 
agreements,  promises,  variances,  trespasses,  damages,  judgments,  executions,  claims, 
and  demands  whatsoever  in  law  or  in  equity  which  against  him  the  said  Company 
ever  had,  now  hath,  or  which  it  or  its  successors  shall,  can,  or  may  have,  for,  upon,  or 
by  reason  of  any  matter,  acts,  or  things  whatsoever  done  in  and  about  the  premises 
from  the  beginning  of  the  world  to  the  date  of  these  premises,  and  particularly  for  all 
acts  done  by  him  as . of  said  Company  or  individually  or  otherwise. 

In  Witness  Whereof,  the  said  Central  Pacific  Railroad  Company  hath 
caused  these  presents  to  be  signed  in  its  name  by  its  .  ...  Vice-President,  and  its  cor¬ 
porate  seal  attested  by  its  Secretary,  to  be  hereunto  affixed  this . . .  day 

of . ,188  . 

The  wording  of  such  an  unconditional  release  as  the  above,  it  need 
hardly  be  said,  is  neither  the  language  nor  the  will  of  the  legitimate 
stockholder.  It  was  gotten  up  in  the  Company’s  law  department  in 
San  Francisco,  and  because  the  learned  attorneys  well  understand  that 
Stanford  &  Co.  are  constantly  transgressing  on  the  rights  of  the  stock¬ 
holders,  and  that  the  abuse  of  the  powers  of  their  offices  renders  such  a 
precaution  advisable.  The  statement  therein  that  explanations  are  made, 
and  their  doings  explained,  even  to  the  dummy  stockholders  present  at 
the  meeting,  is  likewise  absolutely  false.  The  stockholders  of  the  Central 
Pacific  are  scattered  throughout  the  Eastern  States  and  Europe,  and  are 


CENTRAL  PACIFIC  RAILROAD. 


35 


totally  ignorant  of  the  proceedings  of  their  Directors  at  the  annual  meet¬ 
ings.  The  powers  which  Stanford  &  Co.  exercise  could  not  be  more  com¬ 
plete  if  theyvwere  the  sole  owners  of  the  property  :  in  fact,  having  built  the 
Central  through  the  Government’s  credit,  and  thereby  acquired  control  of 
other  roads,  they  now  regard  themselves  as  owners  of  them  all,  and  treat 
the  rights  and  interests  of  others  as  secondary  to  their  own.  They  would 
rather  give  up  a  road  than  submit  to  any  restrictions  being  placed 
upon  their  selfish  policy,  for  from  that  moment  the  road  would  cease  to  be 
profitable  to  them.  Let  a  stockholder  or  the  Government  attempt  to  locate 
the  surplus  earnings  of  a  line,  and  show  in  the  annual  report,  and  they 
will  doubtless  find  that  either  the  Pacific  Improvement  Company  or  the 
Southern  Pacific  Company  has  borrowed  it,  and  perhaps  paid  it  back  in 
bonds  which  formerly  were  owned  by  Stanford  &  Co.  The  Investigation 
Commission,  on  coming  across  one  of  the  above  releases  spread  in  full  on 
the  Central’s  minutes,  could  not  help  expressing  astonishment,  and  they 
tried  to  learn  the  object, — if  the  parties  to  whom  they  were  issued  were 
afraid  to  answer  for  their  acts.  Only  the  principal  Directors  are  favored 
with  them,  the  others  serve  them, — not  the  stockholders.  This  may  be 
clearly  seen  by  the  following  brief  reference  to  the  parties  serving  in  the 
capacity  of  subordinate  Directors : 

The  Southern  Pacific  Company’s  Board  is  composed  of  eleven  Direc¬ 
tors.  Besides  the  principals,  there  are  the  following:  F.  S.  Douty,  who 
is  also  Secretary  of  the  Pacific  Improvement  Company  and  other  private 
concerns  owned  by  Stanford  &  Co.;  S.  T.  Gage,  recently  appointed  by 
Stanford  as  assistant  to  the  President ;  William  E.  Brown,  of  Contract  and 
Finance  Company  fame,  etc.,  also  employed  as  the  private  bookkeeper  for 
Stanford  &  Co.;  Ariel  Lathrop,  brother-in-law  to  Stanford  ;  W.  V.  Hunt¬ 
ington,  nephew  of  C.  P.  Huntington  ;  E.  H.  Miller,  Jr.,  the  Secretary 
and  a  Director  of  the  Central;  A.  N.  Towne,  General  Manager  and  third 
Vice-President,  and  holding  similar  positions  in  the  Central;  also  T.  E. 
Stillman,  of  New  York,  who  lately  succeeded  Timothy  Hopkins  as  a  Direc¬ 
tor,  representing  the  Hopkins  estate;  he  holds  ten  shares  in  his  name  to 
qualify  him  as  such. 

In  the  Central  Pacific  Board  there  are  seven  Directors.  In  addition 
to  Stanford  &  Co.,  we  have  A.  N.  Towne,  recently  instated,  also  nomi¬ 
nally  serving  as  third  Vice-President ;  it  may  be  remarked  that  in  this 
capacity  he  is  not  allowed  a  release  for  his  acts,  having  no  interest  in  the 
road  save  the  positions  he  fills  by  the  grace  of  Stanford  &  Co.;  E.  H. 
Miller,  Jr.,  also  Secretary  of  the  Company;  he  is  better  acquainted  with 
the  acts  of  his  superiors  than  any  one  else,  having  been  associated  with 
them  almost  from  their  start,  and  served  continuously  as  a  Director  and 
Secretary  of  the  Company  :  as  the  latter,  he  had  the  custody  of  the 
missing”  contract  with  the  Contract  and  Finance  Company,  the  Record 
of  Corporation  Debts,  and  other  important  books  and  documents  de¬ 
stroyed.  The  seventh  Director,  Mr.  C.  E.  Bretherton,  resides  in  Eng¬ 
land,  and  was  recently  appointed  to  the  place  at  the  instance  of  Mr. 
Huntington  as  a  compromise  with  the  dissatisfied  stockholders  in  Europe, 
and  who  protested  against  using  the  Central’s  guaranteed  rental  towards 
reducing  the  floating  debt.  Mr.  Bretherton  takes  no  part  in  the  pro¬ 
ceedings  of  the  home  Directors,  and,  excepting  to  occasionally  voting  an 
objection  to  the  adoption  of  injurious  measures,  he  is  powerless  to  pro¬ 
tect  the  Central.  His  chief  aim  is  to  see  that  the  annual  report  is  suffi¬ 
ciently  elaborate  in  detail  to  satisfy  the  stockholders  he  represents;  to 
him  is  also  due  the  credit  of  requiring  the  payment  of  the  Central’s 
rental  to  the  stockholders  in  regular  dividends. 


36 


CENTRAL  PACIFIC  RAILROAD. 


Having  shown  the  material  which  surrounds  Stanford  &  Co.  in  either 
Board,  and  which  is  supposed  to  act  in  the  interest  of  all  stockholders,  I 
now  invite  attention  to  the  copies  of  correspondence  given  herewith. 
There  is  a  reference  in  one  of  them  to  the  missing  Contract  and  Finance 
Company’s  books,  indicating  that  the  writer,  the  Secretary  of  the  Central 
Pacific,  knows  something  of  their  whereabouts.  Congress  will  remember 
that  no  one  could  be  found  who  would  testify  before  the  late  Commission 
regarding  the  destruction  of  these  books,  while  all  professed  ignorance  as 
to  their  hiding-place.  As  to  the  correspondence  herewith,  it  will  be 
observed  that  it  was  written  shortly  after  the  passage  of  the  bill  by  Con¬ 
gress,  authorizing  the  appointment  of  the  Investigation  Commission,  and 
was  doubtless  instigated  by  it. 

]Sew  York,  January  10,  1887. 

Friend  Miller  :  As  you  probably  know,  the  account  known  as  “  S.  H.  H.  &  C.” 
shows  exceedingly  large  figures,  which  we  propose  now  to  cut  down,  since  there  are 
no  assets  to  represent  any  such  figures  as  these,  which  seem  to  show  large  amounts 
to  be  distributed.  I  don’t  understand  this  account  myself,  do  not  know  much  about 
it,  in  fact,  and  Mr.  Crocker  does  not  know  any  more.  1  know  it  is  asking  considera¬ 
ble,  but  I  would  like  to  have  you  look  over  these  accounts,  asters,  and  everything  con¬ 
nected  therewith  so  as  to  verify  them,  and  then  send  me  a  statement.  I  have  great 
confidence,  as  you  know,  in  Wm.  E.  Brown;  but  all  men  are  liable  to  mistakes  and  I 
would  like  to  have  you  take  this  matter  up  and  attend  to  it,  as  we  propose  to  charge 
off  to  profit  and  loss  enough  to  bring  the  figures  down  to  the  actual  assets  on  hand. 
It  is  possible  Willard  can  help  you  in  this  matter,  if  you  call  on  him  to  do  so.  Mr. 
Brown  will  of  course  do  all  he  can. 

Yours  very  truly, 

C.  P.  Huntington. 


San  Francisco,  January  25,  1887. 

C.  P.  Huntington,  Esq.,  Vice-President,  New  York. 

Hear  Sir:  Yours  of  10th  inst.  duly  received.  1  have  looked  into  the  matter  of 
the  very  large  balances  to  the  credit  of  the  individual  accounts  of  Lelaud  Stanford, 
C.  P.  Huntington,  Charles  Crocker,  and  estate  of  Mark  Hopkins,  on  the  books  of  S.  H. 
H.  &  C.,  amounting  to  over  $35,300,000.  These  large  balances  arise  from  the  follow¬ 
ing  causes  : 

As  appears  by  the  books,  there  has  been  distributed  or  divided  at  various  times 
sundry  properties,  which  have  been  currently  charged  to  “  Dividend  Account,” 
amounting  to  $9,250,520.21  ;  and  various  collections  have  been  credited  to  s  ime 
account,  for  dividends  and  interest  received  on  stocks,  etc.,  amounting  to  $655,533.53, 
— the  debt  balance  being  $8,594,986.68.  Among  the  items  charged  to  “  Dividend 
Account,”  the  larger  ones  are  :  in  June,  1877,  “  S.  P.  Bonds,  divided,”  $2,880,000.00; 
in  1878.  Oakland  Water  Front  Stock,  divided,  $474,601.39;  Central  Pacific  R.  R.  Co. 
stock  (E.  B.  C.),  $5,192,550.00. 

Since  1875,  interest  accounts  have  been  made  up  yearly  in  favor  of,  and  the 
amounts  credited  to  the  personal  accounts  of,  Leland  Stanford,  C.  P.  Huntington, 
Charles  Crocker,  Mark  Hopkins,  and  estate  of  Mark  Hopkins,  and  charged  to  “  Interest 
Account,”  amounting  in  the  aggregate,  in  round  numbers,  to  $20,000,000.  This  was  all 
right  and  proper,  because  the  amount  of  capital  contributed  by  each  was  unequal  ;  and 
by  making  up  interest  on  the  full  amount  of  credit  balance  of  each  from  time  to  time, 
each  got  in  effect  a  credit  tojwhich  he  was  entitled  for  interest  on  the  excess  he  had  in 
the  Company.  This  matter  of  equalizing  the  interest,  however,  led  to  the  very 
large  amount  of  debit  which  now  appears  in  “Interest  Account.”  This  debit  repre¬ 
sents  no  assets,  it  being  really  a  Company  loss,  and  might  have  been  legitimately 
charged  to  “  Profit  and  Loss.” 

Besides  these  large  items  of  interest  credited  to  the  individuals,  S.  H.  H. 

&  C.,  above,  there  were  large  items  of  interest  both  received 


and  paid,  leaving  the  balance  of  debit  in  “  Interest  Account  ” . $20,826,789  49 

There  also  appears  on  the  books  a  debit  balance  to  “  Profit  and  Loss” 

acc  ount  of .  1,187,215  33 

The  main  items  to  credit  of  this  account  is  “  Balance  transferred  from 

Contract  and  Finance  Company” .  2,608,292  29 

A  few  of  the  larger  items  to  debit  of  same  account  are  : 

“Transfer  Market  St.  RR.”  .  212,893  01  ‘ 

“lone  property  stock  issued  and  divided” .  229,065  60 


CENTRAL  PACIFIC  RAILROAD. 


37 


“  Rolling  Stock  furnished  S.  P.  R.  R.  Co.,  for  account  of  C.  &  F.  Co.”. .  $236,681  92 

“Estate  of  E.  B.  Crocker,  amount  of  note  given  to  E.  B.  Crocker, 

March  24,  1871,  by  Stanford,  Huntington  and  Hopkins” .  1,298,140  00 

“  Amount  due  on  contract  of  S.  P.  R.  R.  Co.,  for  rolling-stock  not  fur¬ 
nished” .  548,435  29 


There  are  many  other  entries  ;  the  above  are  stated  merely  to  give  you  some  idea 


of  the  account.  Now,  these  items  to  debit  of 

“  Dividend  Account,”  say . . .  $8,594,986  68 

“  Interest  Account,”  “  .  20,826,789  49 

“  Profit  and  Loss,  “  .  1,187,215  33 


Amounting  in  aggregate  to . $30,608,991  50 

are  properly  aud  legitimately  chargeable  to  the  individual  accounts  of  the  parties 
S.,  H.,  H.  &  C.,  in  equal  amounts,  one-fourtli  to  each. 

This  would  reduce  the  amounts  now  standing  to  their  credits,  as  follows  : 

Present  credits,  aggregate  in  lound  numbers,  say . $35,300,000 

Charges  as  above .  30,600,000 


Leaves  to  their  credit . $4,700,000 

Something  like  the  amount  of  the  actual  assets. 


In  the  above  are  stated  the  amounts  as  they  appear  for  December  31,  1885,  the 
accounts  of  S.,  H.,  H.  &  C.  are,  as  you  are  aware,  inactive,  and  Mr.  Brown  has  not  yet 
posted  them  up  for  1886,  but  will  do  so  as  soon  as  your  statements  for  December,  1886, 
are  to  hand. 

The  interest  accounts  for  Leland  Stanford,  C.  P.  Huntington,  etc.,  for  1886,  will, 
when  made  up  and  credited,  of  course  vary  the  amounts  of  their  accounts ;  but  you  will, 
I  think,  be  able  to  get  from  the  above  sufficient  general  facts  to  enable  you  to  under¬ 
stand  how  it  comes  that  such  large  amounts  appear  to  credit  of  L.  S.,  C.  P.  H.,  C.  C., 
and  estate  of  M.  H.,  while  the  assets  are  so  much  less. 

Mr.  Hopkins  makes  a  suggestion  to  Mr.  Brown,  in  which  Mr.  Brown  concurs, — and 
which  I  think  would  be  well  to  carry  out, — that  is,  that  since  S.,  H. ,  H.  &  C.  are  now 
the  only  parties  in  interest  in  the  Pacific  Improvement  Company,  that  the  books  of  3., 
H.,  H.  &  C.  be  written  up,  the  accounts  of  “  Dividend,”  “  Interest,”  “  Profit  and  Lots,” 
etc.,  be  charged  off  as  suggested,  aud  the  books  balanced  and  turned  over  with  the 
balances  and  assets  to  the  P.  I.  Co. ;  the  P.  I.  Co.  to  transfer  the  balances  of  3.,  H.,  H. 
&  C.  books  to  the  P.  I.  Co.  books ;  and  thus  have  only  one  set  of  books  for  the 
accounts  of  the  parties,  S.,  H.,  H.  &  C. 

Trusting  the  above  will  be  satisfactory,  I  am, 

Yours  very  truly, 

E.  H.  Miller,  Jr. 


San  Francisco,  January  25,  1887. 

C.  P.  Huntington,  Esq  ,  Vice-President,  New  York  : 

Dear  Sir  :  I  received  your  letter  of  10th  in  relation  to  examining  the  books  of  S. ,  H. , 
H.  &  C. ,  and  have  written  you  to-day  in  explanation  of  the  large  balances  to  the  credit 
of  L.  S.,  C.  P.  H.,  C.  C.,  and  estate  of  M.  H. 

I  have  gone  over  the  books  as  much  in  detail  as  is  possible  in  the  time  I  have  had 
to  devote  to  them  since  the  receipt  of  your  letter,  and  I  find  them  correct  so  far  as  I 
have  examined  them.  I  had  no  difficulty  in  tracing  out  every  item  which  I  looked  up. 
It  will  be  impossible  for  me  personally  to  make  a  critical  expert  examination  of  the 
books.  There  were  many  items  brought  forward  or  transferred  from  old  C.  &  F.  Co. 
accounts,  and  a  thorough  and  exhaustive  examination  would  require  to  go  back  to  the 
old  books  of  the  C.  &  F.  Co.  to  see  that  they  had  been  properly  kept,  and  the  balances 
properly  transferred  to  the  books  of  S.,  H.,  H.  &  C.  But  assuming  that  the  balances 
brought  from  books  of  C.  &  F.  Co.  are  correct,  as  they  doubtless  are,  the  accounts  in 
books  of  S.,  H.,  H.  &  C.  date  back  to  1873  ;  and  it  will  be  a  work  taking  considerable 
time — more  than  I  could  possibly  devote  to  it,  to  undertake  to  verify  them. 

The  suggestion  in  my  other  letter  that  the  books  be  written  up,  and,  with  the 
assets,  turned  over  to  P.  I.  Co.,  will,  if  carried  out,  enable  the  P.  I.  Co.  to  have  the 
books  in  hand,  and  an  examination  can  be  made  under  the  direction  of  Mr.  Douty, 
tak'ng  all  the  time  that  might  be  required. 

It  is  not  necessary  for  me  to  say  or  assure  you  that  I  would  or  will  personally  give 
to  Mr.  Douty  all  the  assistance  and  advice  in  my  power  in  his  making  any  examina¬ 
tion  that  may  be  determined  on.  My  knowledge  of  and  recollection  as  to  some  of  the 


38 


CENTRAL  PACIFIC  RAILROAD. 


accounts  which  have  a  connection  with  the  Central  Pacific  Company  may  be  of  ser¬ 
vice  in  such  examination. 

Very  truly  yours, 

E.  H.  Miller,  Jr. 


The  foregoing  letters  will  give  some  idea  to  the  stockholders  and 
Government  of  the  purposes  for  which  these  private  Companies  exist. 
To  credit  Stanford  &  Co.  direct  with  the  enormous  profits  they  get  from 
the  roads  they  operate,  would  be  stating  the  fact  too  plainly,  so  instead 
such  titles  as  44  Southern  Development  Company, ”  44  Pacific  Improve¬ 
ment  Company,”  44  Western  Development  Company,”  etc.,  are  used. 
One  has  only  to  read  the  report  of  the  Majority  Commission  on  the  contract 
with  the  Pacific  Improvement  Company,  extending  the  California  and  Ore¬ 
gon  road,  heretofore  quoted,  and  he  will  cease  to  wonder  why  Stanford  & 
Co.  do  not  allow  themselves  more  than  $10,000  per  year  as  salary. 

It  is  to  be  hoped  that  the  Court  of  Claims  will  see  the  folly  in  recom¬ 
mending  the  payment  into  the  hands  of  these  men  of  amounts  withheld 
by  the  Government  for  transportation  service  performed  on  non-aided 
lines  of  the  Central.  During  the  operation  of  the  road  by  Stanford  &  Co. 
the  United  States  will  have  enough  trouble  in  collecting  the  amount 
already  owing,  and  it  would  be  an  injustice  to  the  stockholders  to  fur¬ 
ther  increase  its  claim.  The  Treasury  Department  at  Washington  seems 
to  understand  its  position  in  the  matter,  and  I  believe  can  be  relied  upon 
to  resist  payment  to  the  last.  Had  Stanford  &  Co.  honest  intention  of 
even  eventually  paying  back  the  debt,  they  would  not  object,  in  the  inter¬ 
est  of  the  stockholders  and  the  road  they  have  ruined,  to  allow  the  credits 
referred  to  to  apply  bn  the  debt.  But  instead,  they  clamor  for  its  payment 
over  to  them,  caring  little  as  to  whether  the  road  ever  succeeds  in  disen¬ 
tangling  itself  from  its  present  difficulties. 

All  of  the  officers  of  the  Union  Pacific  Railway  [state  the  Majority  Commission, 
page  19  of  their  report]  have  declared  that  if  such  amount  be  fixed  so  as  to  be  within 
the  limits  of  their  financial  ability  to  pay,  they  will  accept  it,  and  agree  to  make  the 
payments  required. 

The  second  consideration  which  has  impressed  us  with  much  force  is  the  necessity 
of  divorcing,  as  far  as  possible,  the  Government  and  the  Railroad  Company.  It  is  not 
seemly  that  the  sovereign  power  of  the  United  States  should  be  subjected  to  the  con¬ 
stant  and  belittling  litigations  that  have  so  persistently  occurred  ever  since  the  issue 
of  these  bonds.  It  is  not  becoming  that  in  these  controversies  the  United  States 
should  be  held  to  have  abdicated  its  s>  vereignty,  and  through  its  officials  be  made  to 
contend  for  petty  successes  or  to  suffer  defeats  in  the  forum  of  its  own  courts.  .  .  . 

If  the  Government  intends  to  collect  the  debt,  the  shortest  method  is 
by  all  means  the  best ;  and  about  the  only  certain  way  in  which  the  stock¬ 
holder  can  derive  a  benefit  from  the  money  withheld  by  the  Government 
would  be  to  apply  it  to  that  purpose.  If  paid  to  the  present  managers 
the  money  would  soon  find  its  way  into  the  hands  of  the  Lessee  Company 
or  the  Pacific  Improvement  Company.  Prompt  action  by  the  Government 
is  necessary  to  protect  its  rights  and  those  of  the  stockholders.  In  the 
past  it  has  been  lavish  and  lenient  with  the  present  managers;  let  it 
reflect  how  little  the  pledges  made  to  it  have  been  kept.  1  understand 
that  a  Senator,  who  is  a  member  of  the  present  Senate  Committee  on 
Pacific  Railroads,  stated  that  in  his  opinion  the  Central  Pacific  road  was 
nothing  but  a  bridge.  One  may  search  through  the  reports  of  the  Com¬ 
pany’s  former  Chief  Engineer,  heretofore  referred  to,  without  coming 
across  a  single  reference  to  the  durability  of  the  road  to  be  constructed ; 
their  sole  object  seemed  to  be  to  rush  the  work  through  to  a  connection,  in 
order  to  obtain  the  munificent  aid  held  out  by  the  Government  and  given 


CE&TR^L  PACIFIC  RAILROAD. 


39 


U » «*»»> « *••«* 

ibout  the  fir fc^^e^tCrathe^  one  f01-  personal  gain.  Eagerly  accepting 
pnal  undertaking,  but  latnei  i  ,  end  0f  thirty  years ;  and 

proffered  loan,  they  agree .  o  a(jt  ar)d  the  swollen  condition  of  the 

If  one  were  to  judge  nom  Zd  fulfilling;  that  promise,  for  to-day 

l  H  »  £ tlne^y ^ea«u"flated  l  hold  them  to  it. 

md  them  figh  g  ^ader  to  carefully  note  the  summing  up 

ire  concluding  I  wi  1  ask  tlie  ieauei  thei/rel30rt : 

|e  Majority  Commission,  pages  49-50  ol  their  report . 

TfiiS  Commission  finds  it  impossible  to g^at  aid  0°^  its  credit,  in  better 
lentfin  making  the  munificent  gr ant  of  land  the  Wifson  Committee  to  the  House  of 

February,  1873.  The  language  of  that  report  rs 

5  f  allows  : 

'  me  conclusion 

Si  ipaihes  everts  of ^ sffigle  ex^^^ 

;ng  ineer  of  the  Commission,  is  that  ed  ^  bave  been  constantly  and  persistently 

>f  the  duties  and  obligations  aho  haye  controned  and  directed  the  construc¬ 
ts  regarded.  The  result  is  t  "  •  g  bave  become  possessed  of  their  surplus 

tio  a  and  development  ofjhese  compan^  ^  of  divi(Uds,  voted  by  themselves 

wfelh^gfearcredimr  the  United  Slates'?  finds  itself  substantially  without  adequate 
sedurity  for  the  repayment  of  its  loans.  ^  gt  th0  tbrephold  o(  this  portion 

(■The  single  exception  referr«^  ,  ji7e  \y(,  ,efer  to  the  administration  of  the 
of  tl.prenort,  to  indicate  and  to  empnasize.  v>  e 
uiion  Pacific  Railway  Company  since  the  spring  of  1884.  .  .  . 

I  have  appended  debJ 

cable ;  but  the tone  offered  by  the ^“£^e£e“one  but  their  own 
ingly  the  least  desirable,  since  1  )  rmhlic  sentiment  in  the 

r  swr. 

edkoiT^^  from  ^  recent  'issue  of  that  paper,  in  which  w.U 

be  found  some  sensible  suggestions .  .  , 

.  .  The  past  history  of  the  Central 

money-making  road,  and  there  is  ^dre^0°latJn  than  it  was  eight  or  ten  years  ago. 
the  State  lias  increased wealth rand  lg{£\oad’was  built  out  of  the  profits  of  ihe 
As  everybody  knows,  the  lated  immense  private  fortunes  ;  a  number 

Central  Pacific  ;  the  quad inlat era  l^lcm  companies-were  enriched  ; 

of  ancillary  companies— both  ra’lr°aa  a  +  .  B  whicli  will  not  bear  the  light  of 

and  enormous  sums  ot  money  were  spent  y  Central  Pacific.  Is  it 

investigation  ;  and  all  this  was  an  even  chance  ;  if  traffic 

,  not  obvious,  then,  that  if  the  .  rollina  stock  and  equipments  were  kept 

were  not  1  lurmted^and  persistent  effort  to  wreck  it,  it 

up  properly  ;  and  if  there ^we  e  without  any  increase  in  rates?  .  .  • 

would  be  a  paying  property,  and  ihat  intangible  property  known 

The  Central  Pacific  owu»  ieril  Pacific  and  which  are  indispensable  to 

*  “ade  that  the  Central  Pacific  is  practically  msol- 

/  Ve"kt  thireis  a  way  to  test  this  question,  and I  to**  out  the^exact 

f  of  this  railroad.  Commissioner  Patterson  ineihods  and  had  the  Government 

'  had  the  road  been  built  and  managed  upon  ho“eestderac^d^ividends  at  the  raie  of  six 
,  loan  l.een  properly  applied,  the  toad  co  M  d  the  Government  loan,  and 

^rd^^dS  e^lent  o,  $5?, 000,000.  If  these  assertions 


40 


CENTRAL  PACIFIC  RA  LR^AD. 


-^,0.-“^  -rAUJUJiu  ±CA  UP 'AD. 

haDdd°sUbof  a  rlceleyare'  £  ^  «■ 

comply  with  its  contracts.  Let  the  receiver  Lerate  hp^n0 H  *he  gr0Und  °f  failu 
to  tbe  Southern  Pacific,  but  as  its  business  rival  for  aS  a  subsidiarJ 

keep  the  road  in  repair  restore  tb^  ^n-SS  P  *or  three  or  four  years.  Let 

and^vhird/l'f  ^fdare  two  ®atters  to  which  attention  should  be  gJ 
a  d  winch,  if  acted  upon,  will  insure  to  the  Government  the  fulfilmfr  i 

debt  ho  ^f10^  ?S  lfc  m?y  impose’  should  ^e  time  for  the  payment  of  1 
fhoSonti  tenpedj«na??ely’  oaucellillg  the  Directors’  lease  oAhe  road  : 

Znci’es™  ltS  SeCUrUy’  °  Uen  entireTy^Zn^alU 


A  SYNOPSIS  OF  A  PLAN  FOE  COLLECTING  THE  DEBT  FEOi 
THE  CEE  TEAL  PACIFIC  RAILROAD  COMPANY. 

Should  the  Directors  decline  to  either  pay  or  guarantee  mvmenf  r 
t  e  entire  debt  at  maturity,  the  Government  to  immediately  foreclose  it 
or  gage  and  take  possession  of  the  entire  road,  including  the  brand 

hnef ;  p/?r1^hase1  afc  a  fair  valuation  the  minority  stock  outstanding-  *  th 
road  and  branches  then  to  be  sold  to  the  highest  bidder.  0UtStanCiin^’  th 

hv  +t,u;riUp0n  le^u.sa*  as  above,  let  the  Government  immediately  foreclos 
by  taking  possession  of  the  stock  held  by  Stanford  &  Co.— the  controlling 

SyTnlr  “»g  a  Iease  of  the  branch*  line 
upon  tavoi able  teims,  uhe  controlling  interest  of  the  whole  to  he  thpi 

leased  for  a  term  of  years  to  the  highest  and  best  biddeT;  the  ownerS 

of  the  minority  stock  to  stand  as  at  present.  The  proceeds  from  the  lens 

+hf  °f  th,G  „bra?1cl1  line®  could  either  be  applied  on  the  debt  or  be  paid  t< 
ow  neis  for  the  use  of  them.  The  total  issue  of  stock  is  680  000  shares 

Pro^m^ 

thera?oreW  thlVebt^hT  h  halfK°f  the  ?ad’s  present  indebtedness.  When, 
ernment  to  selllts  stock  to  StSfyilTSSf  $25’000’000’  the  Go- 


